FORM 8-K (Amended)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
June 11, 1997
AQUA CARE SYSTEMS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-22434
-------- -------
(State or other jurisdiction of (Commission file no.)
incorporation or organization)
13-3615311
----------
(I.R.S. employer identification number)
11820 NW 37th Street
CORAL SPRINGS, FLORIDA 33065
- ---------------------- -----
(Address of principal (Zip code)
executive offices)
Registrant's telephone number,
including area code: (954) 796-3338
3806 N. 29TH AVENUE; HOLLYWOOD, FLORIDA 33020
- --------------------------------------------------------------------------------
(Former name or former address, if changes since last report)
<PAGE>
Item 2. TERMS OF ACQUISITION.
(a) In June 1997, the Company, pursuant to an Asset Purchase Agreement,
acquired certain assets and assumed certain liabilities of the Filtration
Systems Division, ("FSD"), of Durco International, Inc., formerly known as the
Duriron Company, Inc., ("DURCO"). The purchase price for the acquisition of FSD
consisted of the sum of (i) approximately $5,000,000 (being the remainder of
$7,120,000 being the total assets minus the amount of accounts receivable and
other assets remaining with DURCO), plus (ii) approximately $1,400,000 in
assumed obligations, plus (iii) 400,000 warrants to purchase Common Stock,
(250,000 warrants having an exercise price of $1.00 each and 150,000 having an
exercise price approximating fair market value as of the closing date, ($0.50),
valued at $5,000). In conjunction with this acquisition, the Company issued
200,000 warrants to purchase Common Stock to Fidelity Funding Financial Group
having an exercise price of $0.50 each.
(b) FSD operations include the manufacturing, assembly and marketing of
various types of water filtration and waste water treatment equipment and
metering pumps for commercial industrial and municipal applications. The
Registrant intends to continue such operations.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Filtration Systems
Division of Durco International, Inc. audited financial statements as of and for
the two years ended December 31, 1996 and compiled financial statements as of
and for the three months ended March 31, 1997.
(b) PROFORMA FINANCIAL INFORMATION. Proforma financial information for
the transaction described above as of March 31, 1997, for the three months ended
March 31, 1997 and for the years ended December 31, 1996 and 1995.
(c) EXHIBIT 2.1, ASSET PURCHASE AGREEMENT. Asset Purchase Agreement
among Aqua Care Systems, Inc., ACS Acquisition Corp. and Durco International,
Inc. (Incorporated here by reference only as such document was originally filed
with initial 8-K filing transmitted in June 1997.)
<PAGE>
Financial Statements
Filtration Systems Division
of Durco International Inc.
Year ended December 31, 1996
Table of Contents
Report of Independent Auditors.................................. 1
Audited Financial Statements
Statement of Assets and Liabilities............................. 2
Statements of Revenues and Expenses............................. 3
Statements of Cash Flows........................................ 4
Notes to Financial Statements................................... 5
<PAGE>
Report of Independent Auditors
Mr. Bruce Hines
Senior Vice President and
Chief Administrative Officer
Durco International Inc.
Dayton, Ohio
We have audited the accompanying statement of assets and liabilities of
Filtration Systems Division of Durco International Inc. as of December 31, 1996,
and the related statements of revenues and operating expenses and cash flows for
each of the two years in the period ended December 31, 1996. 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 assets and liabilities of Filtration Systems Division
of Durco International Inc. at December 31, 1996, and its revenues and operating
expenses and its cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
June 4, 1997 Ernst and Young, LLP
Dayton, Ohio
- 1 -
<PAGE>
Filtration Systems Division
of Durco International Inc.
Statement of Assets and Liabilities
Year ended December 31, 1996
ASSETS
Current assets:
Cash $ 23,526
Accounts receivable 2,027,851
Inventories 1,927,537
---------------
3,978,914
Property, plant and equipment:
Land 32,586
Buildings 2,094,535
Machinery and equipment 2,884,113
Furniture and fixtures 891,738
---------------
5,902,972
Less accumulated depreciation (4,624,943)
---------------
1,278,029
Other assets 136,683
---------------
Total assets $ 5,393,626
===============
LIABILITIES
Current liabilities:
Accounts payable $ 283,353
Accrued liabilities 654,840
---------------
938,193
Parent-company invested capital 4,455,433
---------------
Total liabilities and parent-company invested capital $ 5,393,626
===============
SEE ACCOMPANYING NOTES.
- 2 -
<PAGE>
Filtration Systems Division
of Durco International Inc.
Statements of Revenues and Operating Expenses
Year ended December 31,
1996 1995
-------------------------------
Revenues $ 14,742,333 $ 16,372,388
Operating expenses:
Cost of revenues 9,774,186 11,035,736
Selling, general, and administrative 4,018,917 4,004,047
------------- -------------
13,793,103 15,039,783
------------- -------------
Revenues in excess of operating expenses $ 949,230 $ 1,332,605
============= =============
SEE ACCOMPANYING NOTES.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Filtration Systems Division
of Durco International Inc.
Statements of Cash Flows
Year ended December 31,
1996 1995
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues in excess of operating expenses $ 949,230 $ 1,332,605
Adjustments to reconcile revenues in excess of operating expenses to net
cash provided by operating activities:
Depreciation 194,594 190,681
Loss (gain) on sale of fixed assets 3,305 (414)
Changes in operating assets and liabilities:
Accounts receivable 2,179,528 (1,124,027)
Inventories (19,278) 693,343
Other assets 89,999 --
Accounts payable (390,841) 193,363
Accrued liabilities (45,131) 177,555
------------- ------------
Net cash flows from operating activities 2,961,406 1,463,106
INVESTING ACTIVITIES
Capital expenditures (177,665) (153,181)
FINANCING ACTIVITIES
Parent-company invested capital refunded (2,784,699) (1,309,261)
------------- ------------
Net change in cash (958) 664
Cash at beginning of year 24,484 23,820
------------- ------------
Cash at end of year $ 23,526 $ 24,484
============= ============
</TABLE>
SEE ACCOMPANYING NOTES.
- 4 -
<PAGE>
Filtration Systems Division of Durco International, Inc.
Notes to the Financial Statements
December 31, 1996
1. DESCRIPTION OF ENTITY, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING
POLICIES
ENTITY
The Filtration Systems Division of Durco International Inc. (FSD) is a single
manufacturing plant located in Angola, New York, that produces filter products
and metering pumps, for use in the process industries. Durco International Inc.
(Durco) was the sole owner of the plant until June 4, 1997, when the
manufacturing plant and filter products and metering pump businesses were sold
to Aqua Care Systems, Inc. (ACSI). See Note 6 for additional information.
BASIS OF PRESENTATION
The statement of assets and liabilities represents those assets and liabilities
of FSD that were purchased by ACSI on June 4, 1997 (see Note 6). The statement
of revenues and operating expenses represents actual costs incurred and revenues
earned by FSD. Expenses reported by FSD include costs allocated from Durco for
certain shared services and commission expense on metering pump sales generated
by Durco's field sales group. The shared services include such costs as
management information systems, accounts receivable collections and payroll
services. Management believes that the basis for such allocations is reasonable.
However, the amounts could differ from amounts that would be incurred if FSD
were operated on a stand-alone basis. Interest cost and income tax expenses
attributed to FSD have been excluded because such amounts are dependent on the
consolidated group of which FSD is a part. The accompanying financial statements
were prepared to present the assets and liabilities and the revenues and
operating expenses of FSD, which does not have a separate legal status or
existence, and are not intended to be a complete presentation of the assets and
liabilities or the results of operations of FSD.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of the allowance for doubtful accounts of
$20,000 at December 31, 1996.
INVENTORIES
Inventory values are stated on the first-in, first-out (FIFO) method and are
stated at the lower of cost or market.
PROPERTY, PLANT, EQUIPMENT, AND DEPRECIATION
Property, plant, and equipment is stated on the basis of cost. Depreciation is
computed by the straight-line method based on the estimated useful lives of the
depreciable assets which range from three to thirty years.
OTHER ASSETS
Other assets reflect a long-term account receivable with Shanghai Textiles, net
of a reserve of $90,000.
- 5 -
<PAGE>
Filtration Systems Division of Durco International, Inc.
Notes to the Financial Statements (continued)
1. DESCRIPTION OF ENTITY, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized using the completed contract method of accounting except
for orders in excess of $200,000 which are recognized using the percentage of
completion method.
USE OF ESTIMATES
The financial statements for FSD are prepared in conformity with generally
accepted accounting principles which require 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.
2. INVENTORIES
Inventories at December 31, 1996 consist of the following:
Work in process $ 407,822
Finished goods 1,519,715
------------
$ 1,927,537
============
3. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 consist of the following:
Wages and other compensation $ 442,074
Commissions 152,234
Other 60,532
----------
$ 654,840
==========
4. RESEARCH AND DEVELOPMENT
Research and development expenses amounted to $207,019 and $140,212 in 1996 and
1995, respectively.
5. CORPORATE CHARGES AND SERVICES
Durco charges FSD for certain shared services. The shared services include
management information systems, payroll services, and accounts receivable
collections which totaled $112,262 and $108,868 in 1996 and 1995, respectively.
In addition, the majority of domestic metering pump sales are generated by
Durco's field sales force. Durco's charge for those services amounted to
$283,674 and $312,690 in 1996 and 1995, respectively.
- 6 -
<PAGE>
Filtration Systems Division of Durco International, Inc.
Notes to the Financial Statements (continued)
6. SUBSEQUENT EVENT
On June 4, 1997, ACSI acquired the net assets of the Filtration Systems Division
of Durco International Inc. The acquisition agreement provided for ACSI to
acquire the assets of FSD for $7,120,000 reduced by the amount of the accounts
receivable and other assets shown on the final statement of net assets and to
assume all current liabilities up to $1,780,000. Additionally, ACSI acquired
only $10,000 of FSD's cash.
- 7 -
<PAGE>
Financial Statements
Filtration Systems Division
of Durco International Inc.
Three months ended March 31, 1997
Table of Contents
Statement of Assets and Liabilities........................... 1
Statement of Revenues and Expenses............................ 2
<PAGE>
Filtration Systems Division
of Durco International, Inc.
Statement of Assets and Liabilities
March 31, 1997
(Unaudited)
ASSETS
Current assets:
Cash $ 10,000
Accounts receivable 1,685,040
Inventories 2,368,782
---------------
4,063,822
Property, plant and equipment:
Land 32,586
Buildings 2,094,535
Machinery and equipment 2,866,660
Furniture and fixtures 893,123
---------------
5,886,904
Less accumulated depreciation (4,639,561)
---------------
1,247,343
Other assets 136,683
---------------
Total assets $ 5,447,848
===============
LIABILITIES
Current liabilities:
Accounts payable $ 674,764
Accrued liabilities 388,742
Notes payable 120,000
---------------
1,183,506
Parent-company invested capital 4,264,342
---------------
Total liabilities and parent-company invested capital $ 5,447,848
===============
- 1 -
<PAGE>
Filtration Systems Division
of Durco International, Inc.
Statement of Revenues and Operating Expenses
For the three months ended March 31, 1997
(Unaudited)
Revenues $ 2,853,028
Operating expenses:
Cost of revenues 1,856,207
Selling, general, and administrative 858,354
------------
2,714,561
------------
Revenues in excess of operating expenses $ 138,467
============
- 2 -
<PAGE>
AQUA CARE SYSTEMS, INC.
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited proforma condensed consolidated financial
statements of the Company, ("ACSI"), and the Filtration Systems Division,
("FSD"), of Durco International, Inc., are derived from, and should be read in
conjunction with the FSD audited and compiled financial statements included
herein and the financial statements of the Company filed with the Company's 1996
report on form 10-KSB and the Company's quarterly report on Form 10-QSB for the
three months ended March 31, 1997. The unaudited proforma condensed consolidated
balance sheet gives effect to the acquisition by the Company of FSD as of March
31, 1997. The unaudited condensed consolidated statement of operations for the
three months ended March 31, 1997, gives effect to the acquisition as if it had
occurred as of January 1, 1997. The unaudited condensed consolidated statements
of operations for the years ended December 31, 1996 and 1995, gives effect to
the acquisition as if it had occurred as of January 1, 1996 and 1995,
respectively. The proforma condensed consolidated financial statements do not
purport to be indicative of the results of operations or financial position
which would have actually been reported had the acquisition been consummated on
the date indicated, or which may be reported in the future.
<PAGE>
<TABLE>
<CAPTION>
AQUA CARE SYSTEMS, INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1997
(Unaudited)
Historical-----------
--------------------- Proforma
ACSI FSD Adjustments Proforma
------------------------------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents $398,362 $10,000 - $408,362
Accounts receivable, net 1,730,918 1,685,040 (1,685,040) (1) 1,730,918
Costs and estimated earnings in excess of billings 296,517 - - 296,517
Inventory 1,813,340 2,368,782 - 4,182,122
Current maturities of notes receivable 94,800 - - 94,800
Prepaids and other 254,960 - - 254,960
----------------------------------------------------
Total current assets 4,588,897 4,063,822 (1,685,040) 6,967,679
Property and equipment, net 1,352,697 1,247,343 2,481,386 (1) 5,081,426
Intangibles assets, net 3,999,958 - - 3,999,958
Notes receivable, less current maturities 117,150 - - 117,150
Other assets 73,106 136,683 (136,683) (1) 73,106
----------------------------------------------------
Total assets $10,131,808 $5,447,848 $659,663 $16,239,319
====================================================
LIABILITIES
Current
Accounts payable $1,432,845 $674,763 - $2,107,608
Accrued expenses 364,098 388,742 - 752,840
Current maturities of long-term debt 258,563 120,000 1,480,000 (1) 1,738,563
(120,000) (1)
Indebtedness to related party 125,000 0 - 125,000
----------------------------------------------------
Total current liabilities 2,180,506 1,183,505 1,360,000 4,724,011
Long-term debt, less current maturities 625,269 0 3,564,006 (1) 4,189,275
----------------------------------------------------
Total liabilities 2,805,775 1,183,505 4,924,006 8,913,286
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par; 5,000,000 shares
authorized, none outstanding - - - -
Common stock, $.001 par, 30,000,000 shares
authorized, 11,697,554 shares issued and outstanding 11,698 0 - 11,698
Additional paid in capital 16,636,805 0 - 16,636,805
(Deficit)/Retained earnings (9,322,470) 4,264,343 (4,264,343) (1) (9,322,470)
----------------------------------------------------
Total stockholders' equity 7,326,033 4,264,343 (4,264,343) 7,326,033
----------------------------------------------------
Total liabilities and stockholders' equity $10,131,808 $5,447,848 $659,663 $16,239,319
====================================================
<FN>
- ---------------------------
See accompanying proforma adjustments
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AQUA CARE SYSTEMS, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 1997
(Unaudited)
Historical--------------
------------------------ Proforma
ACSI FSD Adjustments Proforma
------------------------------------ -----------
<S> <C> <C> <C> <C>
Revenues $3,631,701 $2,853,028 - $6,484,729
Cost of revenues 2,435,173 1,856,207 - 4,291,380
------------------------------------ -----------
Gross profit 1,196,528 996,821 0 2,193,349
------------------------------------ -----------
OPERATING EXPENSES
Selling, general and administrative 1,152,858 806,906 (58,359) (1) 1,901,405
Depreciation and amortization 135,003 50,000 - 185,003
Provision for doubtful accounts and notes 8,000 0 - 8,000
---------------------------------------------------
Total operating expenses 1,295,861 856,906 (58,359) 2,094,408
---------------------------------------------------
(Loss)/Income from operations (99,333) 139,915 58,359 98,941
Interest expense (23,774) - (145,015) (2) (168,789)
Other income/(expense) 133,333 (1,448) - 131,885
---------------------------------------------------
Net income $10,226 $138,467 ($86,656) $62,037
===================================================
Proforma net income per common share $0.01
==========
Proforma common shares outstanding 10,722,554
==========
<FN>
- ---------------------------
See accompanying proforma adjustments
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AQUA CARE SYSTEMS, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1996
Historical-------------
----------------------- Proforma
ACSI FSD Adjustments Proforma
------------------------------------- -----------
<S> <C> <C> <C> <C>
Revenues $15,987,147 $14,742,333 - $30,729,480
Cost of revenues 11,062,494 9,774,186 - 20,836,680
------------------------------------- -----------
Gross profit 4,924,653 4,968,147 0 9,892,800
------------------------------------- -----------
OPERATING EXPENSES
Selling, general and administrative 5,032,940 3,818,917 (245,928) (1) 8,605,929
Depreciation and amortization 498,346 200,000 - 698,346
Provision for doubtful accounts and notes 59,154 0 - 59,154
----------------------------------------------------
Total operating expenses 5,590,440 4,018,917 (245,928) 9,363,429
----------------------------------------------------
(Loss)/Income from operations (665,787) 949,230 245,928 529,371
Interest expense (92,685) - (580,061) (2) (672,746)
----------------------------------------------------
Net (Loss)/Income ($758,472) $949,230 ($334,133) ($143,375)
====================================================
Proforma net loss per common share ($0.02)
=========
Proforma common shares outstanding 9,477,354
=========
<FN>
- ---------------------------
See accompanying proforma adjustments
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AQUA CARE SYSTEMS, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
Historical-------------
----------------------- Proforma
ACSI FSD Adjustments Proforma
------------------------------------ -----------
<S> <C> <C> <C> <C>
Revenues $14,821,475 $16,372,388 - $31,193,863
Cost of revenues 9,559,559 11,035,736 - 20,595,295
------------------------------------ -----------
Gross profit 5,261,916 5,336,652 0 10,598,568
------------------------------------ -----------
OPERATING EXPENSES
Selling, general and administrative 7,301,056 3,804,047 (245,928) (1) 10,859,175
Depreciation and amortization 628,628 200,000 - 828,628
Provision for doubtful accounts and notes 370,541 0 - 370,541
Provision for impairment of intangible assets 1,094,167 0 - 1,094,167
----------------------------------------------------
Total operating expenses 9,394,392 4,004,047 (245,928) 13,152,511
------------------------------------ -----------
(Loss)/Income from operations (4,132,476) 1,332,605 245,928 (2,553,943)
Interest expense (141,283) - (580,061) (2) (721,344)
----------------------------------------------------
Net (Loss)/Income ($4,273,759) $1,332,605 ($334,133) ($3,275,287)
====================================================
Proforma net loss per common share ($0.52)
===========
Proforma common shares outstanding 6,307,714
===========
<FN>
- ---------------------------
See accompanying proforma adjustments
</FN>
</TABLE>
<PAGE>
AQUA CARE SYSTEMS, INC.
PROFORMA ADJUSTMENTS
BALANCE SHEET:
(1) To reflect the acquisition of FSD and the allocation of the
purchase price on the basis of the estimated fair values of the net assets
acquired. The purchase price for the acquisition of FSD consisted of cash, notes
payable and warrants to purchase Common Stock aggregating approximately
$6,400,000 as detailed in Item 2, "Terms of Acquisition".
Allocation of the net purchase price to the assets of the business is
as follows:
Approximate net purchase price to be allocated $ 6,400,000
================
Approximate excess of fair value of net assets over
net liabilities of FSD $ 6,400,000
================
STATEMENT OF OPERATIONS (for the three months ended March 31, 1997):
(1) To record a reduction in selling, general and administrative
expenses as a result of reduced payroll and other expenses.
(2) To record interest expense on acquisition notes which bear interest
at rates ranging from 11% to 18% as of June 1997.
STATEMENT OF OPERATIONS (for the year ended December 31, 1996)
(1) To record a reduction in selling, general and administrative
expenses as a result of reduced payroll and other expenses.
(2) To record interest expense on acquisition notes which bear interest
at rates ranging from 11% to 18% as of June 1997.
STATEMENT OF OPERATIONS (for the year ended December 31, 1995)
(1) To record a reduction in selling, general and administrative
expenses as a result of reduced payroll and other expenses.
(2) To record interest expense on acquisition notes which bear interest
at rates ranging from 11% to 18% as of June 1997.
<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, hereunto duly authorized.
Aqua Care Systems, Inc.
Registrant
By: /s/WILLIAM K. MACKEY
--------------------
William K. Mackey
President, Chief Executive Officer, Treasurer and Principal Accounting
Officer
/s/GEORGE J. OVERMEYER
----------------------
George J. Overmeyer
Corporate Controller
Dated: August 25, 1997
