U.S. SECURITIES & 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) June 7, 1996
AQUAGENIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-24490 65-0419263
(State or other jurisdiction of (Commission File Number) (I.R.S.Employer
incorporation) Identification No.)
6500 Northwest 15th Avenue, Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 975-7771
Not Applicable
(Former name or former address, if changed since last report)
Page 1
ITEM 7. Financial Statements and Pro Forma Financial Statements and Exhibits
The following financial statements and pro forma financial
information are incorporated herein as part of this report.
Page
(a) Financial Statements of Business Acquired
Audited financial statements of Aquatic and Right of
Way Control, Inc. as of December 31, 1995 and for the
year ended December 31, 1995, together with the
auditors' report thereon. 5-11
Unaudited interim financial statements of Aquatic and
Right of Way Control, Inc. as of March 31, 1995 and
1996 and for the three months ended March 31, 1995 and
1996. 12-17
(b) Pro Forma Consolidated Financial Information (Unaudited)
Unaudited pro forma condensed consolidated financial
statements of Aquagenix, Inc. and Aquatic and Right
of Way Control, Inc. :
Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1996 18
Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1995 19
Pro Forma Condensed Consolidated Statement of Operations
for the three months ended March 31, 1996 20
Notes to Pro Forma Condensed Consolidated Financial
Statements 21-23
The pro forma consolidated financial information have been prepared
giving effect to the acquisition of Aquatic and Right of Way Control,
Inc. as if the transaction had taken place at March 31, 1996 for the
pro forma balance sheet and January 1, 1995 for the pro forma
statements of operations for the years ended December 31, 1995 and
the three months ended March 31, 1996. The pro forma information has
been based on historical financial statements of Aquagenix, Inc. and
Aquatic and Right of Way Control, Inc. (as provided by the
accountants of Aquatic and Right of Way Control, Inc.) after giving
effect to the acquisition using the purchase method of accounting
and the adjusments as described in the accompanying notes to the pro
forma financial statements. The carrying values of the acquired assets
and liabilities have been estimated to approximate fair market
values. The allocation of the purchase price is subject to final
determination based on the valuations of the assets acquired. Any
purchase price adjustments will be made within one year from the
acquisition date and are not expected to be material to the pro forma
financial information taken as a whole.
Page 2
The pro forma financial information is not necessarily indicative of
the results of operations or the financial position which would have
been attained had the acquisition been consummated on the dates
indicated or which may be achieved in the future. The pro forma
financial statements should be read in conjunction with the historical
financial statements of both Aquagenix, Inc. and Aquatic and Right of
Way Control, Inc.
(c) Exhibit
10.81 Stock Exchange Agreement, dated as of June 7, 1996, by
and among Aquagenix, Inc., Aquatic and Right of Way
Control, Inc. and Ray Spirnock and Shirley Spirnock.
(incorporated by reference to Exhibit 10.81 to the
Company's Current Report on Form 8-K, filed with the
Commission on June 20, 1996).
Page 3
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.
AQUAGENIX, INC.
Date: August 15, 1996 By: /s/ Helen Chia
Helen Chia,
Chief Financial Officer
Page 4
AQUATIC & RIGHT OF WAY CONTROL, INC.
FINANCIAL STATEMENTS AND AUDITORS' REPORT
DECEMBER 31, 1995
Page 5
INDEPENDENT AUDITORS' REPORT
February 21, 1996
Board of Directors
Aquatic & Right of Way Control, Inc.
Plant City, Florida
We have audited the accompanying balance sheet of Aquatic & Right of Way
Control, Inc., as of December 31, 1995, and the related statements of income,
retained earnings, 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 Aquatic & Right of Way Control,
Inc., as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Respectfully submitted,
Harman & Peaslee, P.A.
/s/ Harman & Peaslee
Certified Public Accountants
Page 6
AQUATIC & RIGHT OF WAY CONTROL, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS:
Cash $ 110,706
Accounts Receivable 20,792
Employee Advance 165
Total Current Assets 131,663
EQUIPMENT
Small Equipment and Tools 44,752
Trucks 128,964
Furniture and Fixtures 11,911
Total Equipment 185,627
Less, Accumulated Depreciation (127,645)
Equipment - Net 57,982
OTHER ASSETS:
Deposits 557
TOTAL ASSETS $ 190,202
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 7,352
Accounts Payable 10,144
Payroll and Payroll Taxes Payable 20,771
Total Current Liabilities 38,267
STOCKHOLDER EQUITY:
Common Stock - 1,000 Shares Authorized,
$1.00 Par Value - 600 Shares Issued and
Outstanding 600
Retained Earnings 151,335
Total Stockholders' Equity 151,935
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 190,202
The Accompanying Notes are an Integral Part of These Financial Statements
Page 7
AQUATIC & RIGHT OF WAY CONTROL, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
SALES AND COMMISSIONS $ 1,106,121
COST OF SALES:
Chemicals 436,530
Subcontracting 91,841
Supplies 20,865
Fuel 21,539
Depreciation 26,893
Equipment Repairs 46,858
Travel and Lodging 24,180
Salaries and Wages 64,191
Payroll Taxes 7,242
Total Cost of Sales 740,139
GROSS PROFIT 365,982
GENERAL AND ADMINISTRATIVE
EXPENSES:
Advertising 3,982
Officer Salaries 74,098
Payroll Taxes 5,668
Entertainment 25,608
Insurance 54,767
Interest 4,700
Professional Fees 7,675
Taxes and Licenses 7,535
Telephone and Utilities 25,085
Other General & Administrative 20,418
Total General and Administrative
Expense 229,536
INCOME FROM OPERATIONS 136,446
OTHER INCOME (EXPENSE):
Interest Income 2,159
Loss on Sale of Equipment (4,374)
Total Other Income (Expense) (2,215)
NET INCOME 134,231
RETAINED EARNINGS, JANUARY 1 92,717
Less, Dividends Paid (75,613)
RETAINED EARNINGS, DECEMBER 31 $ 151,335
The Accompanying Notes are an Integral Part of These Financial Statements
Page 8
AQUATIC & RIGHT OF WAY CONTROL, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
CASH ACTIVITIES FROM OPERATING
ACTIVITIES:
Collection from Customers $ 1,128,300
Payment for Goods and Services (998,428)
Repayment of Line of Credit (20,000)
Interest Paid (4,700)
Cash Provided by Operating Activities 105,172
CASH FLOWS (USED BY) INVESTING
ACTIVITIES:
Purchase of Equipment (3,000)
CASH FLOWS FROM (USED BY)
FINANCING ACTIVITIES:
Repayment of Long-Term Debt (7,869)
Dividends Paid (75,613)
Cash Used by Financing Activities (83,482)
INCREASE IN CASH 18,690
CASH, JANUARY 1 92,016
CASH, DECEMBER 31 $ 110,706
RECONCILIATION OF NET INCOME TO NET CASH
FLOWS FROM OPERATING ACTIVITIES
Net Income $ 134,231
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 26,893
Loss on Sale of Equipment 4,374
(Increase) Decrease in:
Accounts Receivable 20,020
Employee Advances (165)
Increase (Decrease) in:
Accounts Payable (92,352)
Payroll and Payroll Taxes Payable 12,171
$ 105,172
The Accompanying Notes are an Integral Part of These Financial Statements
Page 9
AQUATIC & RIGHT OF WAY CONTROL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The company is a service provider to various utility and
other companies in control vegetation on their utility,
road and waterway right of ways. These services are
basically performed for companies in the State of
Florida.
ACCOUNTS RECEIVABLE
Accounts receivable are considered to be fully
collectible; accordingly, no allowance for doubtful
accounts is required. If amounts become uncollectible,
they will be charged to operations when that
determination is made.
DEPRECIATION
The company records all equipment at cost. Depreciation
is calculated by the straight-line method over the
estimated useful lives of the assets, ranging generally
from three to seven years.
SIGNIFICANT CONCENTRATION OF CREDIT RISK
The company has concentrated its credit risk for cash by
maintaining all of its accounts with the Southtrust Bank.
The maximum loss that would have resulted from the risk
totaled $10,706 as of December 31, 1995, for the excess
of the deposit liabilities reported by the bank over the
amount that would have been covered by federal insurance.
INCOME TAXES
The Company has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. Under
these provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead,
the stockholders are liable for individual income taxes
on their respective share of income.
RELATED PARTY TRANSACTIONS
The Company's does not pay any rent for its office space,
which is located in the stockholder's home.
Page 10
AQUATIC & RIGHT OF WAY CONTROL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 4: LONG-TERM DEBT
Long-term debt consist of two notes payable to local
banks. Payment amounts total $959 per month and include
interest at the rate of 8%, and are secured by vehicles.
These notes will be fully amortized during the year ended
December 31, 1996.
Page 11
AQUATIC & RIGHT OF WAY CONTROL, INC.
BALANCE SHEET
MARCH 31, 1995
UNAUDITED
ASSETS
CURRENT ASSETS
Cash $ 20,983.90
Accounts Receivable 40,049.97
Employee Advances 0.00
Total Current Assets $ 61,033.87
PROPERTY AND EQUIPMENT
Tools & Small Equipment 41,751.67
Autos and Trucks 162,793.52
Furniture & Fixtures 4,083.00
Buildings 7,827.00
Accumulated Depreciation (127,579.41)
Total Property and Equipment Net 88,875.78
OTHER ASSETS
Deposits 557.00
TOTAL ASSETS $ 150,466.65
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 51,637.28
Line of Credit 20,000.00
Payroll Taxes Payable 1,619.92
Total Current Liabilities 73,257.20
LONG-TERM DEBT
Note Payable - Ford Motor 10,685.65
Note Payable - First Fede 8,019.62
Total long-term Debt 18,705.27
TOTAL LIABILITIES 91,962.47
STOCKHOLDERS' EQUITY
Common Stock 600.00
Retained Earnings 92,717.00
Dividends Paid (1,560.48)
Net Income Current Year (33,252.34)
Total Stockholders' Equity 58,504.18
TOTAL LIABILITIES AND STOCKHOLDERS' EQU $ 150,466.65
Page 12
AQUATIC & RIGHT OF WAY CONTROL, INC.
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
INCOME
Sales and Commissions $ 134,850.74
Interest Income 365.27
Total Income $ 135,216.01
EXPENSES
Chemicals 67,549.30
Subcontractors 8,725.00
Advertising 201.00
Auto and Truck Expense 337.75
Fuel 3,941.98
Damages 750.00
Travel & Lodging 5,863.05
Meals 1,218.95
Bunnell Hunt Lease 23.00
Entertainment 1,046.00
Bids 25.00
Bank Charges 0.00
Repairs & Maintenance 17,667.04
Outside Services 450.00
Depreciation Expense 9,667.50
Dues & Subscriptions 292.18
Insurance 10,617.98
Interest 604.12
Legal & Accounting 1,500.00
Taxes & Licenses 2,045.70
Office Expense 3,023.85
Postage & Shipping 352.19
Payroll Taxes 1,697.24
Supplies 3,435.98
Telephone Expense 3,754.36
Utility Expense 1,518.18
Wages & Salaries 22,161.00
Total Expenses 168,468.35
OTHER INCOME
Sale of Assets 0.00
NET INCOME (LOSS) $ (33,252.34)
Page 13
AQUATIC & RIGHT OF WAY CONTROL, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995
Cash flows from operating activities:
Net loss $ (33,252)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 9,668
Net change in operating assets and (11,049)
Net cash used in operating acti (34,633)
Cash flows from investing activities:
Purchase of property and equipment (6,617)
Cash flows from financing activities:
Repayment of long-term debt (28,222)
Payment of dividends (1,560)
Net cash used in financing acti (29,782)
Cash and cash equivalents:
Decrease (71,032)
Beginning balance 92,016
Ending balance $ 20,984
Page 14
AQUATIC & RIGHT OF WAY CONTROL, INC.
BALANCE SHEET
MARCH 31, 1996
UNAUDITED
ASSETS
CURRENT ASSETS
Cash $ 11,117.10
Accounts Receivable 83,709.54
Employee Advances 215.00
Total Current Assets $ 95,041.64
PROPERTY AND EQUIPMENT
Tools & Small Equipment 44,751.67
Autos and Trucks 128,964.19
Furniture & Fixtures 11,910.80
Accumulated Depreciation (133,644.91)
Total Property and Equipment Net 51,981.75
OTHER ASSETS
Deposits 557.00
TOTAL ASSETS $ 147,580.39
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 14,144.00
Line of Credit 0.00
Payroll Taxes Payable 2,308.32
Total Current Liabilities 16,452.32
LONG-TERM DEBT
Note Payable 5,432.89
Total long-term Debt 5,432.89
TOTAL LIABILITIES 21,885.21
STOCKHOLDERS' EQUITY
Common Stock 600.00
Retained Earnings 151,334.78
Dividends Paid (16,923.00)
Net Income Current Year (9,316.60)
Total Stockholders' Equity 125,695.18
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 147,580.39
Page 15
AQUATIC & RIGHT OF WAY CONTROL, INC.
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
INCOME
Sales and Commissions $ 149,290.04
Interest Income 331.96
Total Income $ 149,622.00
EXPENSES
Chemicals 51,219.60
Subcontractors 22,350.00
Advertising 196.36
Auto and Truck Expense 0.00
Fuel 4,229.85
Damages 77.00
Travel & Lodging 3,877.97
Meals 299.89
Bunnell Hunt Lease 3,544.71
Entertainment 540.79
Bids 0.00
Bank Charges 3.53
Repairs & Maintenance 6,720.04
Outside Services 1,510.00
Depreciation Expense 6,000.00
Dues & Subscriptions 93.00
Insurance 10,021.83
Interest 172.00
Legal & Accounting 2,287.75
Taxes & Licenses 306.75
Office Expense 780.25
Miscellaneous 3,500.77
Postage & Shipping 220.00
Payroll Taxes 2,664.41
Supplies 4,677.93
Telephone Expense 3,398.68
Utility Expense 1,826.99
Wages & Salaries 28,418.50
Total Expenses 158,938.60
OTHER INCOME
Sale of Assets 0.00
NET INCOME (LOSS) $ (9,316.60)
Page 16
AQUATIC & RIGHT OF WAY CONTROL, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
Cash flows from operating activities:
Net loss $ (9,317)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 6,000
Net change in operating assets and
liabilities (77,430)
Net cash used in operating activit (80,747)
Cash flows from financing activities:
Repayment of long-term debt (1,919)
Payment of dividends (16,923)
Net cash used in financing activit (18,842)
Cash and cash equivalents:
Decrease (99,589)
Beginning balance 110,706
Ending balance $ 11,117
Page 17
AQUAGENIX, INC. & SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
AQUAGENIX AQUATIC PRO FORMA CONSOLIDATED
Assets HISTORICAL RIGHT OF WAY ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 810,280 $ 11,117 $ (150,000)(a)$ 671,397
Accounts receivable, net 761,703 83,709 845,412
Income tax receivable 486,239 0 486,239
Inventories 333,386 0 333,386
Net assets of discontinued operations 1,192,720 0 1,192,720
Prepaid expenses and other 180,054 215 180,269
Total current assets 3,764,382 95,041 (150,000) 3,709,423
Property and equipment, net 1,844,814 51,982 1,896,796
Intangible assets, net 3,177,583 0 1,374,305 (a) 4,927,888
376,000 (h)
Deferred financing costs, net 188,460 0 188,460
Other assets 73,439 557 73,996
Total assets $ 9,048,678 $ 147,580 $ 1,600,305 $ 10,796,563
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 575,077 $ 0 $ $ 575,077
Borrowings under credit agreements 404,415 0 404,415
Accounts payable 473,491 14,144 487,635
Other current liabilities 251,220 2,308 253,528
Total current liabilities 1,704,203 16,452 0 1,720,655
Long-term debt, net of current maturities 5,023,898 5,433 5,029,331
Deferred income tax 0 0 376,000 (h) 376,000
Total liabilities 6,728,101 21,885 376,000 7,125,986
Stockholders' equity:
Common stock 32,153 600 2,100 (a) 34,853
Additional paid-in capital 8,451,615 0 1,347,300 (a) 9,798,915
Retained earnings (deficit) (6,163,191) 125,095 (125,095)(a) (6,163,191)
Total stockholders' equity 2,320,577 125,695 1,224,305 3,670,577
Total liabilities and stockholders'$ 9,048,678 $ 147,580 $ 1,600,305 $ 10,796,563
equity
</TABLE>
Page 18
AQUAGENIX, INC. & SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
AQUAGENIX (Note A) AQUATIC & PRO FORMA AQUAGENIX
HISTORICAL AMERAQUATIC RIGHT OF WAY ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
Revenues $ 6,208,905 $ 3,137,549 $ 1,106,121 $ 0 $ 10,452,575
Costs and expenses:
Costs of services 3,344,314 1,509,793 713,246 (334,889)(b) 5,232,464
Selling, general and administrati 3,723,724 1,450,800 229,210 (833,778)(b) 4,569,956
Depreciation and amortization 253,190 129,319 26,893 280,750 (c) 708,374
18,222 (d)
Total costs and expenses 7,321,228 3,089,912 969,349 (869,695) 10,510,794
Operating (loss) income (1,112,323) 47,637 136,772 869,695 (58,219)
Interest income 217,364 0 2,159 0 219,523
Interest expenses (161,385) (25,068) (4,700) (520,833)(e) (711,986)
(Loss) income from continuing operatio (1,056,344) 22,569 134,231 348,862 (550,682)
before income taxes
Income tax (benefit) provision (374,350) 0 0 58,957 (f) (169,187)
146,206 (g)
(Loss) income from continuing operati$ (681,994) $ 22,569 $ 134,231 $ 143,699 $ (381,495)
Loss per common share $ (0.22) $ (0.11)
Weighted average common shares
outstanding 3,166,768 270,000 (a) 3,436,768
</TABLE>
Note A - Acquisition of AmerAquatic, Inc. ("AmerAquatic") was completed on
October 31, 1995 (as previously reported on Form 8K/A dated October
31, 1995). Operating results are included from January 1, 1995
to October 31, 1995 which is the date of acquisition.
Page 19
AQUAGENIX, INC. & SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
AQUAGENIX AQUATIC & PRO FORMA AQUAGENIX
HISTORICAL RIGHT OF WAY ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Revenues $ 2,252,634 $ 149,290 $ 0 $ 2,401,924
Costs and expenses:
Costs of services 1,094,942 124,159 (21,500)(b) 1,197,601
Selling, general and administrative 650,634 28,608 (17,919)(b) 661,323
Depreciation and amortization 137,089 6,000 28,743 (c) 171,832
Total costs and expenses 1,882,665 158,767 (10,676) 2,030,756
Operating income (loss) 369,969 (9,477) 10,676 371,168
Interest income 41,311 332 0 41,643
Interest expenses (160,790) (172) 0 (160,962)
Income (loss) from continuing operations 250,490 (9,317) 10,676 251,849
before income taxes
Income tax provision 0 0 0 (f) 0
Income (loss) from continuing operation$ 250,490 $ (9,317) $ 10,676 $ 251,849
Earnings per common and common
equivalent shares $ 0.08 $ 0.07
Weighted average common and common
equivalent shares outstanding 3,354,026 270,000 (a) 3,624,026
</TABLE>
Page 20
AQUAGENIX, INC. & SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Explanation of pro forma adjustments
(a) On June 7, 1996, Aquagenix, Inc. (the "Company") acquired 100% of the
voting common stock of Aquatic and Right of Way Control, Inc. ("ARC").
The aggregate purchase price was $1,500,000, of which $1,350,000 was
paid by the issuance of 270,000 shares of the Company's common stock
and $150,000 was paid in cash which was funded out of cash flows from
operations.
The net tangible assets acquired from ARC consist primarily of accounts
receivable and equipment . The acquisition of ARC is estimated to
create approximately $1,400,000 of intangible assets calculated as
follows:
Stock purchase price $ 1,350,000
Cash purchase price 150,000
Total purchase price 1,500,000
Less: Net tangible assets acquired (125,695)
Intangible assets $ 1,374,305
Comprising:
Intangible contract relationships to be
amortized over 10 years 1,000,000
Goodwill to be amortized over 25 years 374,305
Total intangible assets $ 1,374,305
(b) Reflects the elimination of certain expenses which would be realized
by the Company after the acquisition. These cost savings reflect certain
expenses, primarily consisting of materials, insurance, payroll and
equipment rentals, which would not be duplicated in the combined
operations of the Company.
Year Ended Three Months
December 31, Ended
1995 March 31,1996
Cost of Services
ARC $ 86,000 $ 21,500
AmerAquatic 248,889 0
$ 334,889 $ 21,500
Selling, General and Administrative Expenses
ARC $ 79,000 $ 17,919
AmerAquatic 754,778 0
$ 833,778 $ 17,919
Page 21
(c) Reflects the amortization of intangible contract relationships and
goodwill,based on the allocation of the purchase price paid for ARC,
which is being amortized on a straight-line basis over 10 and 25 years,
respectively. Also reflects amortization of a non-compete agreement of
$100,000, goodwill of $2,646,026, and finance costs of $452,000 based on
the allocation of the purchase price paid for AmerAquatic on straight-line
basis over 10, 20 and 8 years, respectively.
Year Ended Three Months
December 31, Ended March 31,
1995 1996
ARC (see note (a)):
Intangible contract relationships $ 100,000 $ 25,000
Goodwill 14,972 3,743
AmerAquatic (as previously reported
in Form 8-K/A dated October 31,
1995) 165,778 0
$ 280,750 $ 28,743
(d) Reflects the adjustment of depreciation for equipment acquired at fair
value on a straight-line basis over 5 to 7 years as follows:
AmerAquatic (as previously reported
in Form 8-K/A dated October 31,
1995) $ 18,222 $ 0
(e) Reflects interest expense at 12.5% on $5,000,000 note issued for the
acquisition of AmerAquatic as follows:
AmerAquatic (as previously reported
in Form 8-K/A dated October 31,
1995) $ 520,833 $ 0
(f) Reflects incremental income taxes since the acquired companies were
Subchapter S corporations prior to their respective dates of acquisition,
assuming a combined federal and state income tax rate of 37.6% as follows:
ARC $ 50,471 $ 0
AmerAquatic 8,486
$ 58,957 $ 0
Page 22
No income taxes have been provided for the quarter ended March 31, 1996
since the Company has a net operating loss carryforward which is available
to offset taxable income.
(g) Reflects the establishment of a deferred tax liability, at an assumed
federal and state income tax rate of 37.6% for intangible contract
relationships purchased in connection with the ARC acquisition.
Page 23
