SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): SEPTEMBER 29, 2000
PROBEX CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 001-15567 33-0294243
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
13355 Noel Road, Suite 1200
Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 788-4772
<PAGE>
ITEM 5. OTHER EVENTS
------------
On November 29, 2000, Probex Corp., a Delaware corporation (the
"Registrant" or "Probex"), through its wholly-owned subsidiary, Probex Fluids
Recovery, Inc., a Delaware corporation ("PFR"), completed a private placement
(the "Private Placement") of Senior Secured Convertible Notes Due 2004 (the
"Notes") in the aggregate amount of $12.5 million. The Notes were issued by PFR,
are secured by the assets of PFR, are guaranteed by the Registrant and are
convertible into the Registrant's common stock. A copy of the press release
issued by the Registrant with respect to the completion of the Private Placement
is attached hereto as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
This Current Report on Form 8-K/A (Amendment No. 1) amends the Current
Report on Form 8-K previously filed with the Commission on October 16, 2000,
relating to the acquisition by the Registrant, through its wholly-owned
subsidiary, PFR, of substantially all of the assets of Specialty Environmental
Services ("SES"), a division of Pennzoil-Quaker State Company, on September 29,
2000. The following documents are included as part of this report:
(a) Financial Statements of the Businesses Acquired. The following audited
financial statements of SES are hereby included as part of this report:
Report of Independent Auditors F-1
Balance Sheet as of September 29, 2000 F-2
Statements of Income and Retained Earnings for the
nine months ended September 29, 2000, and the year
ended December 31, 1999 F-3
Statements of Cash Flows for the nine months ended
September 29, 2000, and the year ended December 31, 1999 F-4
Notes to Financial Statements F-5
(b) Pro Forma Financial Information. The pro forma financial statements of
the Registrant are hereby included as part of this report:
Pro Forma Combined Condensed Statement of Operations (unaudited) PF-1
2
<PAGE>
(c) Exhibits.
--------
Exhibit No. Description
99.1 - Press Release, dated December 4, 2000.
3
<PAGE>
SIGNATURE
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.
Dated: December 13, 2000
PROBEX CORP.
By: /s/ Bruce A. Hall
-----------------------
Bruce A. Hall
Chief Financial Officer
4
<PAGE>
Report of Independent Auditors
To Management
Specialty Environmental Services
We have audited the accompanying balance sheet of Specialty Environmental
Services (the "Company") as of September 29, 2000, and the related statements of
income and retained earnings and cash flows for the nine-month period ended
September 29, 2000 and the year ended December 31, 1999. 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 audit in accordance with auditing standards generally accepted
in the United States. 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 statement. 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 Specialty Environmental
Services at September 29, 2000, and the results of its operations and its cash
flows for the nine months ended September 29, 2000 and the year ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States.
November 15, 2000
/s/ Ernst & Young LLP
----------------------
F-1
<PAGE>
Specialty Environmental Services
Balance Sheet
SEPTEMBER 29,
2000
-----------------
ASSETS
Current assets:
Cash $ --
Accounts receivable, net of allowance of $134,224 1,389,252
Deferred tax asset 49,663
Inventory 36,193
----------
Total current assets 1,475,108
Furniture, fixtures and equipment, net 557,503
----------
Total assets $2,032,611
LIABILITIES AND RETAINED EQUITY
Current liabilities:
Accounts payable $ 97,827
Accrued expenses 83,402
Intercompany payable 717,660
----------
Total current liabilities 898,889
Deferred tax liability 24,393
Commitments and Contingencies --
Retained Earnings 1,109,329
----------
Total liabilities and retained earnings $ 2,032,611
===========
F-2
<PAGE>
Specialty Environmental Services
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 29, DECEMBER 31,
2000 1999
---------------------------------------
<S> <C> <C>
Revenues $ 7,477,444 $ 7,959,893
Cost of revenues 803,037 1,043,239
---------------------------------------
6,674,407 6,916,654
Operating expenses:
Selling, general and administrative 5,042,402 6,629,077
---------------------------------------
Total operating expenses 5,042,402 6,629,077
---------------------------------------
Income from operations 1,632,005 287,577
Other expense (73,655) (85,087)
---------------------------------------
Net income before taxes 1,558,350 202,490
Income taxes - current 576,249 70,532
Income taxes - deferred 340 4,390
---------------------------------------
---------------------------------------
Net income 981,761 127,568
Retained earnings at beginning of period 127,568 --
---------------------------------------
---------------------------------------
Retained earnings at end of period $ 1,109,329 $ 127,568
=======================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Specialty Environmental Services
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, DECEMBER 31
2000 1999
--------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 981,761 $ 127,568
Adjustments to reconcile net income to net cash provided (used
by) operating activities:
Depreciation 107,374 113,638
Provision for doubtful accounts -- 53,904
Provision for deferred income taxes 340 4,390
Changes in assets and liabilities:
Accounts receivable (323,608) (291,352)
Inventory (2,865) (33,328)
Intercompany accounts (814,978) (1,234,495)
Prepaid expenses and other current assets -- 350
Accounts payable and accrued expenses 61,388 (48,540)
--------------------------------------------
Net cash provided (used) by operating activities 9,412 (1,307,862)
INVESTING ACTIVITIES
Additions to furniture, fixtures and equipment (9,412) (20,318)
--------------------------------------------
Net cash used in investing activities (9,412) (20,318)
FINANCING ACTIVITIES
--------------------------------------------
Net cash used in financing activities -- --
--------------------------------------------
Net increase (decrease) in cash and cash equivalents -- (1,328,180)
Cash and cash equivalents at beginning of period -- 1,328,180
--------------------------------------------
Cash and cash equivalents at end of period $ -- $ --
============================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Specialty Environmental Services
Notes to Financial Statements
September 29, 2000
1. Summary of Significant Accounting Policies
Nature of business
Specialty Environmental Services, (the "Company"), an operating unit of
Pennzoil-Quaker State (the "Parent"), is engaged in the collection and re-sale
of waste oil and related waste products, and the sale of related services and
equipment. The Company was acquired by Pennzoil Corporation as a part of its
merger with Quaker State Company on December 30, 1998. The Company is currently
operating primarily in the southwestern United States.
The Company operates in a single segment.
On the close of business on September 29, 2000, substantially all of the assets
and selected liabilities of the Company were acquired by Probex Corp. The
$5.5 million purchase price consisted solely of a 13% promissory note from
Probex Corp. to Pennzoil-Quaker State.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with a maturity
date of three months or less when purchased. All cash and cash equivalents are
held by Parent.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed on a
first-in, first-out basis. There is a risk that the Company will forecast demand
for its products and market conditions incorrectly and accumulate excess
inventories. Therefore, there can be no assurance that the Company will not
accumulate excess inventory and incur inventory lower of cost or market charges
in the future.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment is recorded at cost and depreciated over
estimated useful lives, which range from three to five years, using the
straight-line method. Normal repair and maintenance costs are charged against
current operations. Significant repairs resulting in an increase in the
operating life of the asset are capitalized and depreciated over the extended
life of the asset.
F-5
<PAGE>
Specialty Environmental Services
Notes to Financial Statements
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for impairment of long-lived assets in accordance with
Financial Accounting Standards, SFAS, No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be recoverable.
At each year-end, the Company reviews its long-lived assets for impairments
based on estimated future nondiscounted cash flows attributable to the assets.
In the event such cash flows are not expected to be sufficient to recover the
recorded value of the assets, the assets are written down to their estimated
fair values. The Company has not recorded any impairment charges to date.
REVENUE RECOGNITION
The Company recognizes revenue from charges levied for the collection of waste
oil and related waste products ("inbound customers") and from sales of waste oil
and related products (outbound customers"). Inbound customer revenue is
recognized when collected for customers charged a fee per unit collected and
over time for customers for which a flat fee per month is charged. Outbound
customer revenue is recognized when title passes to the customer, typically upon
delivery.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive and evolving federal, state
and local environmental laws and regulations related to the discharge of
materials into the environment. These laws and regulations may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites. Compliance with
such laws and regulations can be costly. Additionally, governmental authorities
may enforce the laws and regulations with a variety of civil and criminal
enforcement measures, including monetary penalties and remediation requirements.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated.
INCOME TAXES
The Company has historically been included in the consolidated tax return of the
Parent. The accompanying financial statements include income taxes calculated on
a separate return basis for the periods ended September 29, 2000 and December
31, 1999.
A valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefit, or that future deductibility is uncertain. Deferred tax assets
F-6
<PAGE>
Specialty Environmental Services
Notes to Financial Statements
and liabilities are recognized for the expected future tax consequences of
events that have been realized in the financial statements or tax returns.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments that are exposed to credit risk consist
primarily of cash and cash equivalents, accounts receivable, and accounts
payable, for which the carrying amounts approximate fair value. The Company has
no single group of or suppliers that exceed 10% of costs.
CONCENTRATION OF CREDIT RISK
The Company has one customer that represents 18% and 23% of revenue for the
periods ended September 29, 2000 and December 31, 1999, respectively.
ACCOUNTING ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ACCUMULATED OTHER COMPREHENSIVE INCOME
As of the date of these Consolidated Financial Statements, the Company has no
components of other comprehensive income as defined by Statement of Financial
Accounting Standards No. 130.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS 133, as amended by FAS 138, is effective
for fiscal years beginning after June 15, 2000. The adoption of SFAS 133 is not
expected to have a material impact on the financial position or results of
operations of the Company.
F-7
<PAGE>
Specialty Environmental Services
Notes to Financial Statements
2. FURNITURE, FIXTURES AND EQUIPMENT
September 29, 2000
--------------------------
Furniture, fixtures and equipment, at cost $ 772,498
Accumulated depreciation (214,995)
--------------------------
$ 557,503
==========================
Depreciation expense was $107,374 and $113,638 for the periods ended September
29, 2000 and December 31, 1999, respectively.
During the period ended September 29, 2000, the Company closed two of its
distribution centers and related assets were transferred to the Parent at net
book value of $145,979. No gain or loss was recognized on the transfers.
No interest was capitalized during the periods ended September 29, 2000 and
December 31, 1999
3. INCOME TAXES
The components of deferred tax assets and liabilities as of September 29, are as
follows:
September 29,
2000
----
Deferred tax assets
Accounts receivable allowance $ 49,663
--------
Total tax assets 49,663
Deferred tax liability
Depreciation (24,393)
---------
Total tax liability (24,053)
--------
Net deferred tax asset 25,270
==========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized.
The Company's effective income tax rate differed from the Federal statutory rate
primarily due to provisions for state taxes.
F-8
<PAGE>
Specialty Environmental Services
Notes to Financial Statements
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims resulting from the normal course of
business. Management believes that the resolution of such uncertainties will not
have a material adverse effect on the Company's financial position or results of
operations.
5. RELATED PARTY TRANSACTIONS
Common expenses are allocated to the subsidiary using an incremental cost method
because specific identification of expenses is not practicable. Charges for
rent, environmental services and use of the Parent's wide area network were
based upon management's estimate of market rates for such services. Management
believes that the method used is reasonable. Rent expense and common expenses
allocated include the following:
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
September 29 December 31
2000 1999
---- ----
<S> <C> <C>
Office space rent $ 72,900 $ 97,200
Distribution facilities rent 590,400 787,200
Environmental services 126,000 168,000
Wide area network 90,000 120,000
----------- -------------
Total $ 879,300 $ 1,172,400
========== ===========
</TABLE>
The Company's corporate facilities are leased from Parent on a month-to-month
basis at $8,100 per month. The accompanying financial statements also include
rent expense related to the use of tankage and other facilities at various
distribution center locations at a rate of $65,600 per month.
The Parent has not historically accrued interest on intercompany balances, which
were $717,660 and $1,677,856 at September 29, 2000 and December 31, 1999,
respectively. Intercompany balances result primarily from rent expense, other
allocations of costs, and cash transfers between the Company and the Parent.
F-9
<PAGE>
<TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Historical
Year Ended
September Pro Forma Adjustments Pro Forma
30,
----------------------------------
2000 PPI/ITC SES As Adjusted
-------------------------------- ------------ ----------------
<S> <C> <C> <C> <C>
Revenues (1) (4)
2,684,869 3,522,008 1,989,973 8,196,850
Cost of revenues (1) (4)
1,378,483 1,853,091 260,810 3,492,384
--------------- ------------ ------------ ----------------
Gross profit
1,306,386 1,668,917 1,729,163 4,704,466
Operating expenses (1,2,3)
7,559,094 1,270,964 2,433,644 (4,5,6) 11,263,702
--------------- ------------ ------------ ----------------
Operating profit (loss)
(6,252,708) 397,953 (704,481) (6,559,236)
Other income (expense) (1) (4)
(12,782) 27,930 (38,484) (23,336)
--------------- ------------ ------------ ----------------
Net profit (loss)
(6,265,490) 425,883 (742,965) (6,582,572)
=============== ============ ============ ================
Net loss per share
(0.288) (0.303)
=============== ================
(1) To record the combined operations of Petroleum Products, Inc. (PPI)
and Intercoastal Trading Company, Inc. (ITC) for the seven months
ended April 30, 2000.
(2) To record the amortization of goodwill recorded in connection with the
acquisition of PPI and ITC of $144,358 for the seven months ended
April 30, 2000.
(3) To record the interest expense on $1.5 million promissory note at 8%
of $120,000 for the seven months ended April 30, 2000.
(4) To record the combined operations of Specialty Environmental Services
(SES) for the twelve months ended September 30, 2000.
(5) To record the amortization of goodwill recorded in connection with the
acquisition of SES of $221,375 for the twelve months ended September
30, 2000.
(6) To record the interest expense on $5.5 million
promissory note at 10% of $550,000 for the twelve months ended
September 30, 2000.
</TABLE>
PF-1
