<PAGE>
UNITED STATES 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) February 20, 1998
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-22097-NY 11-2908692
(State or jurisdiction of (Commission (I.R.S. employer
incorporation or organization) File Number) identification number)
5151 SAN FELIPE, SUITE 450
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 621-7911
Former name or former address if changed since last report: Not Applicable
<PAGE>
PURPOSE OF THIS AMENDMENT
On March 9, 1998, the registrant filed its Form 8-K for the acquisition of
Code 3, Inc. Financial information required under Item 7 and Regulation S-B Item
310 was not available at the time of the filing. The purpose of this amendment
is to include the required audited financial statements and pro forma
information.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 20, 1998, Boots & Coots International Well Control, Inc. (the
"Company"), completed the acquisition of 100% of the outstanding shares of
common stock of Code 3, Inc., a Texas Corporation ("Code 3"). Code 3 is a
hazardous material emergency response and remediation company with operational
offices in Houston, San Antonio, Laredo, El Paso, Harlingen, Fort Worth and
Denver, Colorado.
Consideration for the acquisition of Code 3, with an effective date for
audited purchase price adjustments of December 31, 1997, was $570,570 in cash,
the assumption of corporate secured debt and interest thereon of $1,211,574.47
at closing; and the issuance at closing of 488,136 shares of the Company's
common stock, of which 158,646 shares were delivered into escrow to secure
certain indemnification obligations of the stockholders of Code 3.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
a. Financial Statements and Pro Forma Financial Information.
The financial statement information required under Regulation S-B Item 310
is included after the signature page as follows:
Pro forma Unaudited Consolidated Balance Sheet, which includes December 31, 1997
Boots & Coots International Well Control, Inc. Audited Balance Sheet, the
December 31, 1997 Code 3, Inc. Audited Balance Sheet, pro forma adjustments and
pro forma unaudited combined balance sheets.
The Six Months Ended December 31, 1997 Boots & Coots International Well Control,
Inc., Income Statement, the Six Months Ended December 31, 1997 Code 3, Inc.
Income Statement, pro forma adjustments and the pro forma unaudited combination.
The Twelve Months Ended June 30, 1997 IWC Services, Inc. (the operating entity
of Boots & Coots International Well Control, Inc. after the merger of July
1997), Income Statement, the Twelve Months Ended December 31, 1997 Code 3, Inc.
Income Statement, pro forma adjustments and the pro forma unaudited combination.
Audited Financial Statements of Code 3, Inc. for the Year Ended December 31,
1997 together with the Auditor's report.
<PAGE>
b. Exhibits.
2.1 Agreement and Plan of Merger and Reorganization among Boots &
Coots International Well Control, Inc., B&C/ITS, Inc. and Code 3,
Inc. and the Stockholders of Code 3, Inc. dated February 19,
1998. The following attachments and schedules have been omitted:
Annexes I, II, III and IV; the Disclosure Schedules of Code 3 and
the Stockholders of Code 3; the Disclosure Schedule of the
Company and B&C/ITS, Inc.; and the closing certificate and
ancillary document listed in Section 9 of Exhibit 2.1. Exhibit
2.1 is incorporated herein by reference to Form 8-K filed March
9, 1998.
99.1 Press release dated February 20, 1998. Exhibit 99.1 is
incorporated herein by reference to Form 8-K filed March 9, 1998.
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements 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.
Date: May 6, 1998 Boots & Coots International Well Control, Inc.
By: /s/ Thomas L. Easley
-------------------------------
Thomas L. Easley
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations of
the Company for the six months ended December 31, 1997 and the twelve months
ended June 30, 1997 and the unaudited pro forma consolidated balance sheet of
the Company as of December 31, 1997 (the "Unaudited Pro Forma Consolidated
Financial Statements") give effect to (i) the Code 3, acquisition under the
purchase method of accounting, (ii) the issuance of 488,136 shares of common
stock by the Company, 158,646 of which are held in escrow (iii) the payment of
$570,570 in working capital, and (iv) the assumption of Code 3, Inc. debt
totaling $$1,211,574.47.
The unaudited pro forma consolidated statement of operations for the six
months ended December 31, 1997 and the twelve months ended June 30, 1997 were
prepared assuming that the transactions described above were consummated as of
the beginning of each period presented. The unaudited pro forma consolidated
balance sheet as of December 31, 1997 includes the historical purchase
accounting entries made for Code 3, Inc. and was prepared assuming that the
transactions described in (ii), (iii) and (iv) above were consummated as of
December 31, 1997.
The Unaudited Pro Forma Consolidated Financial Statements are based upon
the historical consolidated and combined financial statements of the Company and
Code 3, Inc. and should be read in conjunction with those consolidated and
consolidated financial statements and historical summary and the notes thereto.
The results of the interim periods presented are not necessarily indicative of
the results to be expected for the entire year.
The pro forma adjustments and the resulting Unaudited Pro Forma
Consolidated Financial Statements have been prepared based upon available
information and certain assumptions and estimates deemed appropriate by the
Company. A final determination of required purchase accounting adjustments, and
the allocation of the purchase price to the assets acquired and liabilities
assumed based on their respective fair values, has not yet been made for the
Code 3, Inc. Acquisition. Accordingly, the purchase accounting adjustments for
the Code 3, Inc. acquisition reflected in the pro forma information are
preliminary and have been made solely for purposes of developing such
information. The Company's management believes, however, that the pro forma
adjustments and the underlying assumptions and estimates reasonably present the
significant effects of the transactions reflected thereby and that any
subsequent changes in the underlying assumptions and estimates will not
materially affect the Unaudited Pro Forma Consolidated Financial Statements
presented herein. The Unaudited Pro Forma Consolidated Financial Statements do
not purport to represent what the Company's financial position or results of
operations actually would have been had the Code 3, Inc. acquisition, occurred
on the dates indicated or to project the Company's financial position or results
of operations for any future date or period. Furthermore, the Unaudited Pro
Forma Consolidated Financial Statements do not reflect changes that may occur as
the result of post-combination activities and other matters.
<PAGE>
Boots & Coots International Well Control, Inc.
Pro Forma Consolidated Balance Sheet
December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Boot & Coots Code 3, Pro Forma Consolidated
International Inc. adjustments Pro Forma
Well Control, Balance
Inc Sheet
--------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 1,718,060 $ 22,070 $ (570,570) $ 1,169,560
Accounts receivable 2,765,581 1,831,185 (550,000) 4,046,766
Inventory 1,131,011 136,007 0 1,267,018
Prepaids and other assets 427,160 63,101 0 490,261
------------ ---------- --------- ----------
Total current assets 6,041,812 2,052,363 (1,120,570) 6,973,605
------------ ---------- --------- ----------
Property and equipment (at cost):
Property and equipment 7,510,424 683,148 (188,110) 8,005,462
Less: Accumulated depreciation (561,615) (188,110) 188,110 (561,615)
------------ ---------- --------- ----------
6,948,809 495,038 - 7,443,847
------------ ---------- --------- ----------
Other assets, net 1,070,752 22,731 3,466,492 4,450,116
------------ ---------- --------- ----------
Total assets $ 14,061,373 $ 2,570,132 $ 2,345,922 $ 18,977,427
------------ ---------- --------- ----------
Current liabilities:
Accounts payable $ 1,679,242 $ 1,140,340 $ 0 $ 2,819,582
Accrued liabilities 486,450 182,677 0 669,127
Notes payable -current 1,562,721 765,864 537,393 2,865,978
Taxes payable 0 7,500 0 7,500
------------ ---------- --------- ----------
3,728,413 2,096,331 0 6,362,187
------------ ---------- --------- ----------
Subordinated debt 92,207 0 0 92,207
Note payable 9,207 540,665 (540,665) 9,207
Equity 10,231,546 (66,914) 2,349,194 12,513,826
------------ ---------- --------- ----------
Total Liabilities and Equity $ 14,061,373 $ 2,570,132 $ 2,345,922 $ 18,977,427
------------ ---------- --------- ----------
</TABLE>
See accompanying notes to unaudited Pro Forma Consolidated Financial Statements
<PAGE>
Boots & Coots International Well Control, Inc.
Pro Forma Consolidated Statement of Operations
Twelve Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Boot & Coots Code 3, Pro Forma Consolidated
International Inc. adjustments Pro Forma
Well Control, Statement of
Inc Operations
--------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 2,564,087 $ 2,540,872 $ 5,104,959
Operating expenses:
Cost of sales 1,459,640 1,784,232 3,707,758
General and administrative 1,061,259 447,349 1,508,608
Depreciation & amortization 111,469 106,234 138,659 356,362
------------ ---------- --------- ----------
Total operating expenses 2,632,368 2,337,815 138,659 5,108,842
Operating income (loss) before taxes (68,281) 203,057 (138,659) (3,883)
Other (income) expense 62,774 (10,430) 52,344
------------ ---------- --------- ----------
Income (loss) before taxes (131,055) 213,487 (138,659) 48,461
Income taxes 24,569 72,585 (72,585) 24,569
------------ ---------- --------- ----------
Net income (loss) $ (155,624) $ 140,902 $ (66,074) $ (80,796)
------------ ----------- ---------- ------------
Earnings Per Share (0.03) (0.01)
============ ============
Weighted Average Shares Outstanding 5,300,509 5,788,645
============ ============
</TABLE>
See accompanying notes to unaudited Pro Forma Consolidated Financial Statements
<PAGE>
Boots & Coots International Well Control, Inc.
Pro Forma Consolidated Statement of Operations
Six Months Ended December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Boot & Coots Code 3, Pro Forma Combined
International Inc. adjustments Pro Forma
Well Control, Balance
Inc Sheet
--------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 5,389,137 $ 2,897,816 $ 8,286,953
Operating expenses:
Cost of sales 3,785,787 2,570,588 6,356,375
General and administrative 1,535,890 501,306 2,037,196
Depreciation & amortization 499,616 36,974 69,330 605,920
------------ ---------- --------- ----------
Total operating expenses 5,821,293 3,108,868 69,330 8,999,491
------------ ---------- --------- ----------
Operating income (loss) before taxes (432,156) (211,052) (69,330) (712,538)
Other (income) expense 285,306 2,290 287,596
------------ ---------- --------- ----------
Income (loss) before taxes (717,462) (213,342) (69,330) (1,000,134)
Income taxes 41,370 41,370
------------ ---------- --------- ----------
Net income (loss) $ (758,832) $ (213,342) $ (69,330) $ (1,041,504)
------------ ---------- ---------- ------------
Earnings Per Share $(0.01) $(0.08)
============ ============
Weighted Average Shares Outstanding 12,191,171 12,679,307
============ ============
</TABLE>
See accompanying notes to unaudited Pro Forma Consolidated Financial Statements
<PAGE>
1. Basis of Presentation:
The unaudited pro forma consolidated balance sheet is presented assuming the
Code 3, Inc. acquisition occurred on December 31, 1997. The unaudited pro forma
consolidated statements of operations for the twelve months ended June 30, 1997
and the six months ended December 31, 1997 are presented as if the Code 3, Inc.
acquisition occurred at the beginning of each of respective periods presented.
The Unaudited Pro Forma Consolidated Financial Statements may not necessarily be
indicative of the results which would actually have occurred if the Code 3, Inc.
acquisition had been in effect on the date or for the periods indicated or which
may result in the future.
2. Pro Forma Adjustments - Statements of Operations
The pro forma adjustments to the unaudited pro forma consolidated statements of
operations reflect the following:
(a) Amortization - The adjustment reflects the pro forma amortization
expense based on the allocation of the excess of the purchase price
over the underlying fair value of assets acquired to goodwill and
amortized over twenty five years.
(b) Income taxes are prepared on a consolidated basis with a formerly
related company. Net operating loss carryforwards are not
considered on an ongoing basis.
3. Pro Forma Adjustments - Balance Sheet
The pro forma adjustments to the unaudited pro forma consolidated balance sheet
reflect the following:
(b) Code 3, Inc. Acquisiton Adjustments - The adjustment reflects the
recording of the Code 3, Inc. Acquisition using the purchase method
of accounting and the allocation of the purchase price price based
on the Company's estimate of the fair value of the assets acquired.
The allocation of the purchase price is preliminary, as valuation
and other studies have not been finalized. It is not expected that
the final allocation of the purchase price will produce materially
different results from those presented herein.
<PAGE>
CODE 3, INC.
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
YEAR ENDED DECEMBER 31, 1997
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Code 3, Inc.
We have audited the accompanying balance sheet of Code 3, Inc. as of December
31, 1997, and the related statements of operations, shareholders' deficit and
cash flows for the year 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 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Code 3, Inc. as of December 31,
1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Houston, Texas
April 27, 1998
F-2
<PAGE>
CODE 3, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 22,070
Accounts receivable, net of allowance for doubtful accounts of $9,000 1,831,185
Other receivables 12,004
Inventories 136,007
Prepaid expenses and other current assets 51,097
-----------
Total current assets 2,052,363
PROPERTY AND EQUIPMENT, net 495,038
OTHER ASSETS 22,731
-----------
Total assets $ 2,570,132
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Revolving line of credit $ 350,000
Note payable to a bank 225,000
Note payable to a shareholder 50,000
Accounts payable 1,140,340
Accrued expenses 182,677
Current portion of long-term debt 140,864
Taxes payable 75,000
-----------
Total current liabilities 2,096,381
LONG-TERM DEBT--net of current portion 540,665
COMMITMENTS AND CONTINGENCIES (Note J)
SHAREHOLDERS' DEFICIT:
Common stock (no par; 100,000 shares authorized; 1,000 shares
issued and outstanding) 26,000
Accumulated deficit (92,914)
-----------
Total shareholders' deficit (66,914)
-----------
Total liabilities and shareholders' deficit $ 2,570,132
===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENT.
F-3
<PAGE>
CODE 3, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
REVENUES: $4,875,556
COSTS AND EXPENSES:
Operating expenses 2,066,320
General and administrative 2,563,020
Depreciation 85,561
---------
4,714,901
OPERATING INCOME 160,655
INTEREST EXPENSE (70,660)
OTHER INCOME 10,932
OTHER BEFORE TAXES (79,081)
----------
INCOME BEFORE TAXES 21,846
INCOME TAXES 7,500
----------
NET INCOME $ 14,346
==========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
CODE 3, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK SHARE-
-------------------------------- ACCUMULATED HOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
--------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1997 1,000 $26,000 $(107,260) $(81,260)
Net income - - 14,346 14,346
----------- ----------- ------------ -----------
BALANCES, December 31, 1997 1,000 $26,000 $ (92,914) $(66,914)
=========== =========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
CODE 3, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,346
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 85,561
Loss on sale of fixed assets 2,724
Deferred income taxes --
Changes in operating assets and liabilities, net of
assets acquired:
Receivables (1,626,653)
Inventories and supplies (79,293)
Prepaid expenses (30,771)
Other current assets (7,908)
Other assets (not current) (21,156)
Accounts payable 941,269
Accrued liabilities 178,548
Other 7,500
-----------
Net cash used in operating activities (535,833)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (250,272)
Disposition of assets 22,003
-----------
Net cash used in investing activities (228,269)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayments (692,220)
Debt proceeds 1,511,107
-----------
Net cash provided by financing activities 818,887
-----------
NET INCREASE IN CASH 54,785
CASH, beginning of year (32,715)
-----------
CASH, end of year $ 22,070
-----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 62,646
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fixed assets acquired under shareholder notes $ 50,000
See accompanying notes to these financial statements.
F-6
<PAGE>
CODE 3, INC.
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION:
Code 3, Inc. (the "Company") was incorporated in Texas in 1993. The Company
provides emergency response service to contain and mitigate hazardous
material and oil spills for the chemical, manufacturing and transportation
industries, as well as state and federal agencies. The Company also
specializes in the transfer of hazardous materials and high and low
pressure liquids and industrial fire fighting. Offices are located in
various cities throughout Texas. Substantially all of the customers are
located in Texas.
B. SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition - Revenue is recognized on the Company's service
contracts either as earned on the basis of day work completed or, for
turnkey contracts, on the percentage-of-completion method based upon costs
incurred to date and estimated total contract costs. Revenue and cost from
equipment sales is recognized upon contract completion and shipment to the
customer.
Inventories - Inventories consist primarily of equipment, parts and
supplies. Inventories are valued at the lower of cost or market. Cost is
determined using the average cost method.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets which range from 3 to 7 years.
Long-lived Assets - The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. The Company has not
identified any such impairment losses.
Income Taxes - The Company's taxable income is included on a consolidated
return with an affiliate. For financial statement purposes, the Company
recognizes taxes as if it filed a separate return.
F-7
<PAGE>
CODE 3, INC.
NOTES TO FINANCIAL STATEMENTS
B. SIGNIFICANT ACCOUNTING POLICIES: (continued)
The Company accounts for income taxes pursuant to the liability method,
which requires recognition of deferred income tax liabilities and assets
for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Under this
method, deferred income tax liabilities and assets are determined based on
the temporary differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities and available tax
carryforwards. The Company has no significant temporary differences.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from these estimates.
Recent Accounting Pronouncements - During 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that displays
these items with the same prominence as other financial statements.
SFAS No. 130 is effective for financial statements presented for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of this
standard, management has been unable to fully evaluate the impact, if any,
the standards may have on the future financial statement disclosures.
Results of operations and financial position, however, will be unaffected
by implementation of this standard.
C. INVENTORIES:
Inventories consisted primarily of personal protective equipment and
absorbents, which amounted to $136,007 at December 31, 1997.
F-8
<PAGE>
CODE 3, INC.
NOTES TO FINANCIAL STATEMENTS
D. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of December 31, 1997:
Machinery and equipment $ 381,568
Transportation equipment 233,497
Office equipment and furnishings 68,083
--------
683,148
Accumulated depreciation (188,110)
--------
Net book value $ 495,038
========
Depreciation expense for the year ended December 31, 1997 was $85,561.
E. REVOLVING LINE OF CREDIT:
At December 31, 1997, the Company had a $350,000 revolving line of credit
with a bank that expires on July 28, 1998. Interest on the unpaid principal
balance of each advance under the line was payable monthly at 11%. The line
of credit was collateralized by trade accounts receivable and equipment and
was guaranteed by the Company's president. In March, 1998, the Company paid
off this revolving line of credit in full.
F. NOTE PAYABLE TO A BANK:
At December 31, 1997, the Company had a note payable to a bank with an
outstanding principal balance of $225,000 that matured on December 31,
1997. Interest on the note at 11% was due at maturity. The note was
collateralized by trade accounts receivable and equipment. In March, 1998,
the Company paid off this note in full.
G. NOTE PAYABLE TO A SHAREHOLDER:
At December 31, 1997, the Company had an unsecured note payable to a
shareholder of $50,000 that matures in March, 1998. The note is non
interest-bearing, and interest has been imputed at 10%.
F-9
<PAGE>
CODE 3, INC.
NOTES TO FINANCIAL STATEMENTS
H. PAYABLE TO A RELATED PARTY:
At December 31, 1997, the Company had an account payable due to an
affiliated entity, which is owned by two of the Company's major
shareholders, in the amount of $40,827. During the year ended December 31,
1997, the Company paid approximately $95,000 for environmental, consulting,
and engineering services provided by this entity.
At December 31, 1997, the Company had an account payable due to another
affiliated entity, which is owned by two of the Company's major
shareholders, in the amount of $3,055. During the year ended December 31,
1997, the Company paid approximately $18,000 for environmental, consulting,
and engineering services provided by this entity.
I. LONG-TERM DEBT:
At December 31, 1997, the Company had three notes payable to finance
companies amounting to $41,684 which bore interest at rates of 9.5% to 10%.
Principal and interest was payable in monthly installments through January,
2001. The notes are collateralized by vehicles.
At December 31, 1997, the Company had a term note payable to a bank
amounting to $616,760 which bore interest at a rate of 10.5%. Principal and
interest is payable in monthly installments through July 28, 2002. The note
is collateralized by accounts receivable, inventory and equipment. Note was
paid subsequent to the Boots & Coots, Inc. acquisition.
At December 31, 1997, the Company had a term note payable to a bank
amounting to $23,085 that bore interest at a rate of 10.5%. Principal and
interest is payable in monthly installments through June, 2000. The note is
collateralized by transportation equipment. Note was paid subsequent to the
Boots & Coots, Inc. acquisition.
F-10
<PAGE>
CODE 3, INC.
NOTES TO FINANCIAL STATEMENTS
I. LONG-TERM DEBT: (continued)
Annual maturities of principal on long-term debt at December 31, 1997 are
as follows:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ---------
1998 $ 140,864
1999 145,392
2000 150,569
2001 150,545
2002 94,159
---------
$ 681,529
=========
J. COMMITMENTS AND CONTINGENCIES:
The Company leases office space, shop facilities, equipment and vehicles
under operating leases with terms in excess of one year.
At December 31, 1997, future minimum lease payments under these
noncancellable operating leases are approximately:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ---------
1998 $213,000
1999 188,000
2000 100,000
2001 51,000
2002 45,000
Thereafter 3,000
---------
$600,000
=========
Rent expense for the year ended December 31, 1997, was approximately
$62,000.
As part of a settlement agreement with another entity the Company is
committed to provide approximately $1,500,000 of service over the next
year.
F-11
<PAGE>
CODE 3, INC.
NOTES TO FINANCIAL STATEMENTS
K. REVENUES FROM MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
During the year ended December 31, 1997, the following customers
represented significant concentrations of revenues:
Customer A $1,072,582
Customer B 784,486
Customer C 622,061
Two of the Company's customers (each in excess of 10%) collectively
accounted for 45% of outstanding accounts receivable at December 31, 1997.
The Company performs ongoing evaluations of its customers and generally
does not require collateral. The Company assesses its credit risk and
provides an allowance for doubtful accounts for any accounts which it deems
doubtful of collection.
The Company maintains deposits in banks which may exceed the amount of
federal deposit insurance available. Management believes that any possible
deposit loss is minimal.
L. OTHER EXPENSES:
Other expenses for the year ended December 31, 1997 consisted primarily of
a loss incurred on the settlement of a potential lawsuit.
M. EVENTS SUBSEQUENT TO DECEMBER 31, 1997:
In January, 1998, the Company executed a promissory note payable to the
Company's president for $150,000, payable in June, 1998.
In January, 1998, the Company acquired 208 shares of common stock from two
shareholders at a price of $2,644 per share in exchange for the assignment
of accounts receivable of the Company representing the right to receive not
less than $550,000 in total. The corporation has guaranteed the full
payment of the redemption price if 90 days thereafter the total proceeds
collected from the accounts equals less than the redemption price.
On February 20, 1998, Boots & Coots International Well Control, Inc. (the
"Parent") acquired all of the capital stock of the Company. Consideration
for the acquisition of the Company, with an effective date for audited
purchase price adjustments of December 31, 1997, was $570,568 cash; the
repayment of corporate secured debt and interest thereon of approximately
$1,250,000; and the issuance of 488,136 shares of Boots & Coots
International Well Control, Inc. common stock, of which 158,646 shares were
delivered into escrow to secure the indemnification obligations of the
shareholders of the Company.
In February, 1998, the Company executed a promissory note to its Parent in
the original principal amount of $165,000. The note is a non-interest
bearing note and is payable on demand.
In March, 1998, the Company pledged all of the assets of the Company and
issued a guarantee to secure a borrowing by its parent of up to $2,250,000
from a third party lender.
F-12
