Registration No. 333-170633
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Pre-effective
Amendment No. 1 to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
SWISHER HYGIENE INC.
(Exact Name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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7342
(Primary Standard
Industrial
Classification Code Number)
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27-3819646
(I.R.S. Employer
Identification Number)
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4725
Piedmont Row Drive, Suite 400, Charlotte, North Carolina
28210,
(704) 364-7707
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
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Steven R. Berrard, President and Chief Executive Officer
Swisher Hygiene Inc.
4725 Piedmont Row Drive, Suite 400,
Charlotte, North Carolina 28210
Telephone:
(704) 364-7707
Fax:
(704) 602-7980
(Name, address, including zip
code, and telephone number,
including area code, of agent for service)
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Please send a copy of all communications to:
Edward L. Ristaino Esq.
Michael Francis Esq.
Akerman Senterfitt
One Southeast Third Ave.,
25th
Floor
Miami, Florida 33131-1714
Telephone: (305) 982-5581
Fax: (305) 374-5095
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Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the
following
box. þ
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount
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Offering
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Aggregate
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Registration
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Securities to be Registered
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to be Registered
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Price per Share(2)
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Offering Price
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Fee
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Common Stock, par value $0.001 per share
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67,589,611
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(1)
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(3)
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Common Stock, par value $0.001 per share, underlying outstanding
warrants
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5,500,000
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(3)
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Common Stock, par value $0.001 per share, underlying outstanding
promissory notes
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2,339,986
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$
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4.11(2
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$
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9,617,343(2
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$686(4)
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(1)
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55,789,632 of these shares are
subject to lock-up agreements and may not be sold under this
registration statement until the lock-up agreements expire.
These shares include those held by H. Wayne Huizenga,
Steven R. Berrard, and other former shareholders of Swisher
International, Inc. The lock-ups expire on the earlier of
(i) the public release of Swisher Hygienes earnings
for the 2011 financial year or (ii) March 31, 2012.
Includes up to 5,500,000 issuable upon the exercise of
outstanding warrants and up to 2,339,986 shares issuable
upon the conversion of outstanding promissory notes.
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(2)
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Estimated solely for the purpose of
calculating the registration fee which was computed in
accordance with Rule 457(c) under the Securities Act of
1933, as amended (the Securities Act), on the basis
of the average high and low sales prices as reported on the
Toronto Stock Exchange on December 9, 2010.
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(3)
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$28,859 was previously paid with
the initial filing.
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(4)
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A fee of $301 is being paid with
the filing of this pre-effective amendment. The fee relates to
up to 1,027,122 shares underlying one of the promissory
notes. The fee with respect to shares underlying the other
promissory note was previously paid.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer
to buy these securities in any state where the offer or sale is
not permitted.
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PRELIMINARY
PROSPECTUS SUBJECT TO COMPLETION DATED DECEMBER 14,
2010.
PROSPECTUS
75,429,597 Shares
SWISHER HYGIENE INC.
The selling stockholders may offer and sell from time to time up
to an aggregate of 75,429,597 shares of Swisher Hygiene
Inc. common stock that they own. These shares include
55,789,632 shares of common stock, subject to lock-up
agreements, including 50,010,670 shares held by
H. Wayne Huizenga and Steven R. Berrard. These shares
also include up to 5,500,000 shares of common stock
underlying warrants held by Michael Serruya and up to
2,339,986 shares issuable upon the conversion of
outstanding promissory notes. For information concerning the
selling stockholders and the manner in which they may offer and
sell shares of our common stock, see Selling
Stockholders and Plan of Distribution in this
prospectus.
We are not selling any securities under this prospectus and we
will not receive any proceeds from the sale by the selling
stockholders of their shares of common stock.
Our common stock trades on the Toronto Stock Exchange
(TSX). On December 13, 2010, the last reported
sale price for our common stock on the TSX was $4.50 per share
(in U.S. dollars).
Investing in shares of our common stock involves a high
degree of risk. See the section titled Risk Factors,
which begins on page 3.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
You should rely only on the information contained in this
prospectus. We have not authorized any dealer, salesperson or
other person to provide you with information concerning us,
except for the information contained in this prospectus. The
information contained in this prospectus is complete and
accurate only as of the date on the front cover page of this
prospectus, regardless of the time of delivery of this
prospectus or the sale of any common stock. This prospectus is
not an offer to sell these securities and we are not soliciting
an offer to buy these securities in any state where the offer or
sale is not permitted.
The date of this prospectus
is ,
2010.
PROSPECTUS
SUMMARY
This summary does not contain all of the information that is
important to you. You should read the entire prospectus,
including the Risk Factors and our consolidated financial
statements and related notes appearing elsewhere in this
prospectus before making an investment decision.
Our
Business
Swisher Hygiene Inc., through its consolidated subsidiaries,
franchisees, and international licensees, provides hygiene
solutions to more than 35,000 customers throughout North America
and internationally through its network of company owned
operations, franchises, and master licenses. Our solutions
include products and services designed to promote superior
cleanliness and sanitation in commercial environments, enhancing
the safety, satisfaction, and well-being of employees and
patrons. Our solutions are typically delivered on a regularly
scheduled basis and involve providing our customers with:
(i) the sale of consumable products such as soap, paper,
cleaning chemicals, detergents, and supplies, together with the
rental and servicing of dish machines and other equipment for
the dispensing of those products; (ii) the rental of
facility service items requiring regular maintenance and
cleaning, such as floor mats, mops, and bar towels; and
(iii) manual cleaning of their facilities. We serve
customers in a wide range of end-markets, with a particular
emphasis on the foodservice, hospitality, retail, industrial,
and healthcare industries.
Going forward, we intend to increase the sale of our products
and services to customers in existing geographic markets as well
as expand our reach into additional markets through a
combination of organic growth and the acquisition of Swisher
franchises, independent chemical service providers, and related
businesses.
We are a Delaware corporation, originally organized in Canada in
1994. Our principal executive offices are located at 4725
Piedmont Row Drive, Suite 400, Charlotte, North Carolina,
28210. On November 2, 2010, we completed a business
transaction with Swisher International, Inc., through a merger
with a wholly-owned subsidiary of Swisher Hygiene. We refer to
this event as the Merger. Immediately before the Merger,
Swisher Hygiene redomiciled to Delaware from Canada, where
it had been a publicly-traded corporation, listed on the Toronto
Stock Exchange (the TSX) under the name CoolBrands
International Inc. (CoolBrands), and trading under
the symbol COB. We refer to this event as the
Redomestication. Upon completion of the Merger and the
Redomestication, Swisher Hygiene inherited the reporting issuer
status of CoolBrands and Swisher Hygienes shares of common
stock began trading on the TSX under the symbol SWI.
CoolBrands was a Canadian company that historically focused on
marketing and selling a broad range of ice creams and frozen
snacks. Since the end of the 2005 financial year, subsidiaries
of CoolBrands disposed of a majority of CoolBrands
business operations. Since that time, CoolBrands principal
operations consisted of the management of its cash resources,
reviewing and considering potential opportunities to invest such
cash resources. CoolBrands held $63,034,459 in cash, cash
equivalents and short term investments as of the closing date of
the Merger.
In the Merger, the former stockholders of Swisher International
received 57,789,630 shares of Swisher Hygiene common
stock, representing, on a fully diluted basis, a 48% ownership
interest in Swisher Hygiene. The stockholders of CoolBrands
retained 56,225,433 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 52% ownership interest
in Swisher Hygiene. As a result of the Merger, Swisher
International is a wholly-owned subsidiary of Swisher Hygiene.
All references in this Registration Statement to
Swisher, Swisher Hygiene, the
company, we, us, and
our refer to Swisher Hygiene Inc. and its
consolidated subsidiaries, except where the discussion relates
to times or matters occurring before the Merger, as defined
below, in which case these words, as well as Swisher
International, refer to Swisher International, Inc. and
its consolidated subsidiaries.
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THE
OFFERING
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Common Stock Offered: |
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The selling stockholders are offering a total of
75,429,597 shares of common stock, these shares include
55,789,632 shares of common stock, currently subject to
lock-up agreements, which were issued to former shareholders of
Swisher International, Inc. in the Merger including shares held
by H. Wayne Huizenga and Steven R. Berrard. Pursuant
to the lock-up agreements, the locked-up stockholders will not,
subject to certain exceptions, offer, sell, contract to sell or
enter into any other agreement to transfer the economic
consequences of any Swisher Hygiene shares for a period ending
the earlier of (i) the public release of Swisher
Hygienes earnings for the 2011 financial year or
(ii) March 31, 2012. |
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Outstanding Shares of Common Stock: |
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As of December 10, 2010, 114,015,063 shares, of our
common stock were issued and outstanding. |
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Use of Proceeds: |
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We are not selling any securities under this prospectus and we
will not receive any proceeds from the sale of shares by the
selling stockholders. To the extent any of the
5,500,000 warrants to purchase shares of our common stock
held by Mr. Serruya are exercised, we will receive the
$0.50 per share exercise price. If Mr. Serruya
exercises the warrants in full, we estimate that our net
proceeds will be approximately $2,750,000. We intend to use any
proceeds from warrant exercises for working capital and other
general corporate purposes. We cannot estimate how many, if any,
warrants Mr. Serruya will exercise. |
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RISK
FACTORS
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below,
together with the other information contained in this
registration statement, before you decide to invest in our
common stock. If any of the following risks, or other risks not
presently known to us, develop into actual events, then our
business, financial condition, results of operations, or
prospects could be materially adversely affected. As a result,
the market price of our common stock could decline, and you
could lose all or part of your investment.
We
have a history of significant operating losses and as such our
future revenue and operating profitability are
uncertain.
Our future revenue and operating profitability are difficult to
predict and are uncertain. Swisher International recorded an
operating loss of $6.8 million for the year ended
December 31, 2009 and ended the year with an accumulated
deficit of $47.0 million. In addition, Swisher
International recorded operating losses of approximately
$10.5 million and $9.3 million for the years ended
December 31, 2008 and 2007, respectively. We may continue
to incur operating losses for the foreseeable future, and such
losses may be substantial. We will need to increase revenues in
order to generate sustainable operating profit. Given Swisher
Internationals history of operating losses, we cannot
assure you that we will be able to achieve or maintain operating
profitability on an annual or quarterly basis or at all.
We may
be harmed if we do not penetrate markets and grow our current
business operations.
If we fail to further penetrate our core and existing geographic
markets, or to successfully expand our business into new markets
or through the right sales channels, the growth in sales of our
products and services, along with our operating results, could
be materially adversely impacted. One of our key business
strategies is to grow our business through acquisitions.
Acquisitions involve many different risks, including
(1) the ability to finance acquisitions, either with cash,
debt, or equity issuances; (2) the ability to integrate
acquisitions; (3) the ability to realize anticipated
benefits of the acquisitions; (4) the potential to incur
unexpected costs, expenses, or liabilities; and (5) the
diversion of management attention and company resources. Many of
our competitors may also compete with us for acquisition
candidates, which can increase the price of acquisitions and
reduce the number of available acquisition candidates. We cannot
assure you that efforts to increase market penetration in our
core markets and existing geographic markets will be successful.
Further, we cannot ensure that we will be able to acquire
businesses at the same rate that we have in the past. Failure to
do so could have an adverse effect on our business, financial
condition and results of operations.
We may
require additional capital in the future and no assurance can be
given that such capital will be available on terms acceptable to
us, or at all.
We will require substantial capital or available debt or equity
financing to execute on acquisition and expansion opportunities
that may come available. We cannot assure you that we will be
able to obtain additional financial resources on terms
acceptable to us, or at all. Failure to obtain such financial
resources could adversely affect our plans for growth, or result
in our being unable to satisfy financial or other obligations as
they come due, either of which could have a material adverse
effect on our business and financial condition. Until a reliable
market providing for sufficient liquidity of our common stock
develops, sellers of acquisition candidates may be unwilling to
accept our common stock as consideration in a transaction, which
could adversely impact our ability to execute our acquisition
strategy.
Although the current credit environment has not had a
significant adverse impact on our liquidity or cost of
borrowing, the availability of funds has tightened and credit
spreads on corporate debt have increased. Therefore, obtaining
additional or replacement financing may be more difficult and
the cost of issuing new debt or replacing a credit facility will
likely be at a higher cost than under our current credit
facilities, which mature in February 2011. In addition, the
current credit and capital markets could adversely impact the
liquidity or financial conditions of suppliers or customers,
which could, in turn, impact our business and financial results.
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To date, a significant amount of our cash requirements have been
met through loans or advances from the former Swisher
International stockholders. In addition, Mr. Huizenga has
provided guarantees with respect to $20 million of our
credit facility. Neither Messrs. Huizenga or Berrard have
agreed to provide the company additional loans, advances, or
guarantees in the future. We cannot assure you that sufficient
financing will be available in the future on a timely basis, on
terms that are acceptable to us or at all. In the event that
financing is not available or is not available in the amounts or
on terms acceptable to us, the implementation of our acquisition
strategy could be impeded, which could have a material adverse
effect on our business, financial condition and future prospects.
Failure
to attract, train, and retain personnel to manage our growth
could adversely impact our operating results.
Our strategy to grow our operations may place a greater strain
on our managerial, financial and human resources than that
experienced by our larger competitors, as they have a larger
employee base and administrative support group. As we grow we
will need to:
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build and train sales and marketing staff to create an expanding
presence in the evolving marketplace for our products and
services, and to keep staff informed regarding the features,
issues and key selling points of our products and services;
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attract and retain qualified personnel in order to continue to
develop reliable and saleable products and services that respond
to evolving customer needs; and
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focus personnel on expanding our internal management, financial
and product controls significantly, so that we can maintain
control over our operations and provide support to other
functional areas within our business as the number of personnel
and the size of our operations increases.
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Competition for such personnel can be intense, and we cannot
assure you that we will be able to attract or retain highly
qualified marketing, sales and managerial personnel in the
future. Our inability to attract and retain the necessary
management, technical, sales and marketing personnel may
adversely affect our future growth and profitability. It may be
necessary for us to increase the level of compensation paid to
existing or new employees to a degree that our operating
expenses could be materially increased.
We may
not be able to properly integrate the operations of acquired
businesses and achieve anticipated benefits of cost savings or
revenue enhancements.
Our business strategy includes growing our business through
acquisitions. The success of any business combination depends on
managements ability following the transaction to
consolidate operations and integrate departments, systems and
procedures, and thereby create business efficiencies, economies
of scale, and related cost savings. In addition, the acquired
customer base must be integrated into the existing service route
structure to improve absorption of fixed costs and create
operational efficiencies. The retention and integration of the
acquired customer base will be a key factor in realizing the
revenue enhancements that should accompany each acquired
business. We cannot assure you that future results will improve
as a result of cost savings and efficiencies or revenue
enhancements from any future acquisitions or proposed
acquisitions, and we cannot predict the timing or extent to
which cost savings and efficiencies or revenue enhancements will
be achieved, if at all.
We may
incur unexpected costs, expenses, or liabilities relating to
undisclosed liabilities of acquired businesses.
In the course of performing due diligence investigations on the
companies or businesses we may seek to acquire, we may fail or
be unable to discover liabilities of the acquisition candidate
that have not otherwise been disclosed. These may include
liabilities arising from non-compliance with federal, state or
local environmental laws by prior owners, pending or threatened
litigation, and undisclosed contractual obligations, for each of
which we, as a successor owner, may be responsible. Although we
will generally seek to minimize exposure to such liabilities by
obtaining indemnification from the sellers of the acquired
companies, we cannot
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assure you that such indemnifications, even if obtainable, will
be enforceable, collectible, or sufficient in amount, scope, or
duration to fully offset the potential liabilities arising from
the acquisitions.
We may
recognize impairment charges which could adversely affect our
results of operations and financial condition.
We assess our goodwill and other intangible assets and
long-lived assets for impairment when required by generally
accepted accounting principles (GAAP) in the
U.S. These accounting principles require that we record an
impairment charge if circumstances indicate that the asset
carrying values exceed their fair values. If our assessment of
goodwill, other intangible assets, or long-lived assets
indicates an impairment of the carrying value for which we
recognize an impairment charge, it may adversely affect our
results of operations.
Goodwill
resulting from acquisitions may adversely affect our results of
operations.
Goodwill and other intangible assets are expected to increase
principally as a result of future acquisitions, and potential
impairment of goodwill and amortization of other intangible
assets could adversely affect our financial condition and
results of operations. We consider various factors in
determining the purchase prices of acquired businesses, and it
is not anticipated that any material portion of the goodwill
related to any of these acquisitions will become impaired or
that other intangible assets will be required to be amortized
over a period shorter than their expected useful lives. However,
future earnings could be materially adversely affected if
management later determines either that the remaining balance of
goodwill is impaired or that shorter amortization periods for
other intangible assets are required.
Future
issuances of shares of our common stock could have a dilutive
effect on your investment.
We could issue additional shares of our common stock in
connection with future acquisitions or for other business
purposes, or under the Swisher Hygiene Inc. 2010 Stock Incentive
Plan (the Plan). Future acquisitions may involve the
issuance of our common stock as payment, in part or in full, for
the businesses or assets acquired. The benefits derived by us
from an acquisition might not exceed the dilutive effect of the
acquisition. Pursuant to the Plan, our board of directors may
grant stock options, restricted stock units, or other equity
awards to our directors and employees. When these awards vest or
are exercised, the issuance of shares of our common stock
underlying these awards may have a dilutive effect on our common
stock. The Plan and the grants thereunder are subject to
stockholder and TSX approval.
Implementing
and maintaining effective internal control over financial
reporting could disrupt managements focus on the business
and adversely affect our business and stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 and the
related rules adopted by the SEC and the Public Company
Accounting Oversight Board, require that our Annual Report on
Form 10-K
for the year ending December 31, 2011, report on the
effectiveness of our internal control over financial reporting.
We may encounter problems or delays in completing the
implementation of any changes necessary to our internal control
over financial reporting to conclude such controls are effective
and such delays may require significant management time and
attention. If we or our independent registered public accounting
firm conclude that our internal control over financial reporting
is not effective, investors could lose confidence in our
financial reporting and our stock price could decline.
Our
business and growth strategy depends in large part on the
success of our franchisees and international licensees, and our
brand reputation may be harmed by actions out of our control
that are taken by franchisees and international
licensees.
A portion of our earnings are expected to come from royalties
and other amounts paid to us by our franchisees and
international licensees. Franchisees and licensees are
independent operators and have a significant amount of
flexibility in running their operations, and their employees are
not our employees. We provide training and support to, and
monitor the operations of, franchisees, but the quality of their
operations may be diminished by any number of factors beyond our
control. Despite the operating obligations the
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franchisees and licensees are subject to pursuant to our
operations manual or the franchise or licensee agreements,
franchisees may not successfully operate their business in a
manner consistent with our standards and requirements and may
not hire and train qualified managers and other personnel. While
we may ultimately take action to terminate franchisees and
licensees that do not comply with the standards contained in the
franchise or licensee agreements and our operations manual, we
may not be able to identify problems and take action quickly
enough and, as a result, our image and reputation may suffer,
potentially causing revenue to decline. Any operational
shortcoming of a franchisee is likely to be attributed by the
public to our entire system, thus damaging our brand reputation
and potentially affecting revenues and operating results.
Furthermore, if a significant number of the franchisees were to
become insolvent or otherwise were unwilling or unable to pay
for products and supplies purchased from us or pay royalties,
rent or other fees, our revenues and operating results would
decrease.
Failure
to retain our current clients and renew existing client
contracts could adversely affect our business.
Our success depends in part on our ability to retain current
customers and renew existing customer service agreements. Our
ability to retain current clients depends on a variety of
factors, including the quality, price, and responsiveness of the
services we offer, as well as our ability to market these
services effectively and differentiate our offerings from those
of our competitors. We cannot assure you that we will be able to
renew existing customer contracts at the same or higher rates or
that our current customers will not turn to competitors, cease
operations, elect to bring the services we provide in-house, or
terminate existing service agreements. The failure to renew
existing service agreements or the loss of a significant number
of existing service agreements would have a material adverse
effect on our business, financial condition, and results of
operations.
The
pricing, terms, and length of customer service agreements may
constrain our ability to recover costs and to make a profit on
our contracts.
The amount of risk we bear and our profit potential will vary
depending on the type of service agreements under which products
and services are provided. We may be unable to fully recover
costs on service agreements that limit our ability to increase
prices, particularly on multi-year service agreements. In
addition, we may provide services under multi-year service
agreements that guarantee maximum costs for the customer based
on a specific criteria, for example, cost per diner, or cost per
passenger day, putting us at risk if we do not effectively
manage customer consumption. Our ability to manage our business
under the constraints of these service agreements may have a
material adverse effect on our financial condition.
Changes
in economic conditions that impact the industries in which our
end-users primarily operate in could adversely affect our
business.
During the last few years, conditions throughout the
U.S. and worldwide have been extremely weak and those
conditions may not improve in the foreseeable future. As a
result, our customers or vendors may have financial challenges,
unrelated to us that could impact their ability to continue
doing business with us. Economic downturns, and in particular
downturns in the foodservice, hospitality, travel, and food
processing industries, can adversely impact our end-users, who
are sensitive to changes in travel and dining activities. The
recent decline in economic activity is adversely affecting these
markets. During such downturns, these end-users typically reduce
their volume of purchases of cleaning and sanitizing products,
which may have an adverse impact on our business. We cannot
assure you that current or future economic conditions, and the
impact of those conditions on our customer base, will not have a
material adverse effect on our business, financial condition and
results of operations.
If we
are required to change our pricing models to compete
successfully, our margins and operating results may be adversely
affected.
The cleaning and maintenance solutions industry is highly
competitive. We will compete with national, regional, and local
providers, many of whom have greater financial resources, less
leverage or lower costs. We
6
will compete in the same market primarily on the basis of brand
name recognition, price, product quality, and customer service.
Competitive markets may require us to reduce our prices for
products and services. If our competitors offer discounts on
certain products or services in an effort to recapture or gain
market share, we may be required to lower prices or offer other
favorable terms to compete successfully. Any such change would
likely reduce margins and could adversely affect operating
results. Some of our competitors may bundle products and
services that compete with our products and services for
promotional purposes as a long-term pricing strategy or may
provide guarantees of prices and product implementations. Also,
competitors may develop new or enhanced products and services
more successfully and sell existing or new products and services
better than we do. In addition, new competitors may emerge.
These practices could, over time, limit the prices that we can
charge for our products and services. If we cannot offset price
reductions or other pricing strategies with a corresponding
increase in sales or decrease in spending, then the reduced
revenue resulting from lower prices would adversely affect our
margins and operating costs.
Several
members of our senior management team are critical to our
business and if these individuals do not remain with us in the
future, it may have an adverse impact on our financial condition
and results of operations.
Our future success depends, in part, on the continued efforts
and abilities of our senior management team. Their skills,
experience and industry contacts are expected to significantly
benefit our business. The loss of any member of our senior
management team would disrupt our operations and divert the time
and attention of the remaining members of the senior management
team, which could have a material adverse effect on our
business, operating results, and financial condition. Because
the market for qualified management is highly competitive, we
may not be able to retain our leadership team or fill new
management positions or vacancies created by expansion or
turnover at existing compensation levels. We do not carry
key-person insurance on the lives of our senior
management team or management personnel to mitigate the impact
that the loss of a key member of our management team would
cause. If we lose the services of one or more of these
individuals, or if one or more of them decide to join a
competitor or otherwise compete directly with us, our business,
operating results, and financial condition could be materially
and adversely affected.
The
financial condition and operating ability of third parties may
adversely affect our business.
We will initially conduct limited manufacturing operations and
will primarily depend, and for the foreseeable future will
continue to depend, on third parties for the manufacture of the
products we sell. We will rely on third party suppliers to
provide us with components and services necessary for the
completion and delivery of our products and services. We expect
to significantly expand our customer base and product offerings,
but our expansion may be limited by the manufacturing capacity
of third party manufacturers. Such manufacturers may not be able
to meet our needs in a satisfactory and timely manner,
particularly if there are raw material shortages.
We purchase the majority of our chemicals from a single
manufacturer and our dispensing equipment and dish machines are
also primarily supplied by single suppliers. Should any of these
third party suppliers experience production delays, we may need
to identify additional suppliers, which may not be possible on a
timely basis or on favorable terms, if at all. A delay in the
supply of our chemicals or equipment could adversely effect
relationships with our customer base and could cause potential
customers to delay their decision to purchase services or cause
them not to purchase our services at all. Further, our primary
chemical manufacturer operates from a single location. We cannot
assure you that our primary manufacturer will be able to meet
our needs in a timely enough manner to avoid a material
disruption of our business, which in turn could have an adverse
effect on our ability to maintain desired levels of
profitability and volume, and could adversely affect
relationships with our customers.
In the event that any of the third parties with whom we have
significant relationships files a petition in or is assigned
into bankruptcy or becomes insolvent, or makes an assignment for
the benefit of creditors or makes any arrangements or otherwise
becomes subject to any proceedings under bankruptcy or
insolvency laws with a trustee, or a receiver is appointed in
respect of a substantial portion of its property, or such third
party
7
liquidates or winds up its daily operations for any reason
whatsoever, then our business, financial position and results of
operations may be materially and adversely affected.
We
rely on a multi-national re-distributor to manage our logistics
operations.
We contract with a re-distributor to manage the delivery of our
products from manufacturing facilities to our local branches.
The re-distributor may be subject to risk, including the costs
and difficulties of managing international operations,
maintaining product quality and enforcing intellectual property
rights. Additionally, the re-distributor may be adversely
affected by local laws and customs, legal and regulatory
constraints, including compliance with the Foreign Corrupt
Practices Act. The re-distributor may be subject to risk that
may impact the re-distributors costs and the
re-distributor may attempt to pass those costs on to us which
could adversely impact our results of operations and financial
condition.
Increases
in fuel and energy costs could adversely affect our results of
operations and financial condition.
The price of fuel is unpredictable and fluctuates based on
events outside our control, including geopolitical developments,
supply and demand for oil and gas, actions by the Organization
of the Petroleum Exporting Countries (OPEC) and other oil and
gas producers, war and unrest in oil producing countries,
regional production patterns, limits on refining capacities,
natural disasters and environmental concerns. In recent years,
fuel prices have fluctuated widely and have generally increased.
Fuel price increases raise the costs of operating vehicles and
equipment. We cannot predict the extent to which we may
experience future increases in fuel costs or whether we will be
able to pass these increased costs through to our customers. If
fuel costs rise, the operating costs of our distribution
operations would increase, resulting in a decrease in margins
and profitability. A fuel shortage, higher transportation costs
or the curtailment of scheduled service could result, any of
which could adversely impact our relationship with franchisees
and reduce our profitability. If we experience delays in the
delivery of products to our customers, or if the products are
not delivered to the customers at all, relationships with our
customers could be adversely impacted, which could have a
material adverse effect on our business and prospects. As a
result, future increases in fuel costs could have a material
adverse effect on our results of operations and financial
condition.
We may
be subject to legal proceedings and disputes.
We may be involved in litigation from time to time in the
ordinary course of business. We may also be subject to legal
proceedings and disputes with current or former joint venture
partners, franchisees, licensees and others. We cannot assure
you that the ultimate resolution of any legal proceedings will
not have a material adverse effect on our business and results
of operations.
Our
products contain hazardous materials and chemicals, which could
result in claims against us.
We use and sell a variety of products that contain hazardous
materials and chemicals. There are hazardous chemicals in some
of our products but in all cases these materials have short term
hazardous actions that can easily be neutralized or disposed of
with minimal effect on the environment or situations that would
require long term remediation treatments due to environmental
contamination. Like all products of this nature, misuse of the
hazardous material based products can lead to injuries and
damages but in all cases if these products are used at the
prescribed usage levels with the proper PPEs (Personal
Protection Equipment) and procedures the chances of injuries and
accidents are extremely rare. Nevertheless, because of the
nature of these substances or related residues, we may be liable
for certain costs, including, among others, costs for
health-related claims, or removal or remediation of such
substances. We may be involved in claims and litigation filed on
behalf of persons alleging injury as a result of exposure to
such substances or by governmental or regulatory bodies related
to our handling and disposing of these substances. Because of
the unpredictable nature of personal injury and property damage
litigation and governmental enforcement, it is not possible to
predict the ultimate outcome of any such claims or lawsuits that
may arise. If any such claims and lawsuits, individually or in
the aggregate, were resolved against us, our results of
operations and cash flows could be adversely affected.
8
We are
subject to environmental, health and safety regulations, and may
be adversely affected by new and changing laws and regulations,
that generate ongoing environmental costs and could subject us
to liability.
We are subject to laws and regulations relating to the
protection of the environment and natural resources, and
workplace health and safety. These include, among other things,
reporting on chemical inventories and risk management plans, and
the management of hazardous substances. Violations of existing
laws and enactment of future legislation and regulations could
result in substantial penalties, temporary or permanent facility
closures, and legal consequences. Moreover, the nature of our
existing and historical operations exposes us to the risk of
liability to third parties. The potential costs relating to
environmental and product registration laws and regulations are
uncertain due to factors such as the unknown magnitude and type
of possible contamination and
clean-up
costs, the complexity and evolving nature of laws and
regulations, and the timing and expense of compliance. Changes
to current laws, regulations or policies could impose new
restrictions, costs, or prohibitions on our current practices
and could have a material adverse effect on our business or
results of operations.
If our
products are improperly manufactured, packaged, or labelled or
become adulterated, those items may need to be
recalled.
We may need to recall the products we sell if products are
improperly manufactured, packaged, or labelled or if they become
adulterated. Widespread product recalls could result in
significant losses due to the costs of a recall and lost sales
due to the unavailability of product for a period of time. A
significant product recall could also result in adverse
publicity, damage to our reputation, and loss of customer
confidence in our products, which could have a material adverse
effect on our business, financial condition, or results of
operations.
Changes
in the types or variety of our service offerings could affect
our financial performance.
Our financial performance is affected by changes in the types or
variety of products and services offered to our customers. For
example, as we begin to evolve our business to include a greater
combination of products with our services, the amount of money
required for the purchase of additional equipment and training
for associates may increase. Additionally, the gross margin on
product sales is often less than gross margin on service
revenue. These changes in variety or adjustment to product and
service offerings could have a material adverse effect on our
financial performance.
We may
not be able to adequately protect our intellectual property and
other proprietary rights that are material to our
business.
Our ability to compete effectively depends in part on our rights
to service marks, trademarks, trade names and other intellectual
property rights we own or license, particularly our registered
brand names, including Swisher and
Sani-Service. We may not seek to register every one
of our marks either in the U.S. or in every country in
which it is used. As a result, we may not be able to adequately
protect those unregistered marks. Furthermore, because of the
differences in foreign trademark, patent and other intellectual
property or proprietary rights laws, we may not receive the same
protection in other countries as we would in the U.S. and
Canada. Failure to protect such proprietary information and
brand names could impact our ability to compete effectively and
could adversely affect our business, financial condition, or
results of operations.
Litigation may be necessary to enforce our intellectual property
rights and protect our proprietary information, or to defend
against claims by third parties that our products or services
infringe on their intellectual property rights. Any litigation
or claims brought by or against us could result in substantial
costs and diversion of our resources. A successful claim of
trademark, patent or other intellectual property infringement
against us, or any other successful challenge to the use of our
intellectual property, could subject us to damages or prevent us
from providing certain services under our recognized brand
names, which could have a material adverse effect on our
business, financial condition, or results of operations.
9
If we
are unable to protect our information and telecommunication
systems against disruptions or failures, our operations could be
disrupted.
We are dependent on internal and third party information
technology networks and systems, including the Internet, to
process, transmit and store electronic information. In
particular, we depend on our information technology
infrastructure for fulfilling and invoicing customer orders,
applying cash receipts, determining reorder points and placing
purchase orders with suppliers, making cash disbursements, and
conducting digital marketing activities, data processing, and
electronic communications among business locations. We also
depend on telecommunication systems for communications between
company personnel and our customers and suppliers. Future system
disruptions, security breaches, or shutdowns could significantly
disrupt our operations or may result in financial damage or loss
due to lost or misappropriated information.
Our
business could suffer in the event of a work stoppage or
increased organized labor activity.
Presently, no Swisher employees are members of any union or
organized labor group. While we consider our relations with
employees to be generally good, we cannot assure you that we
will not experience work stoppages, strikes, or slowdowns in the
future. In addition, for the foreseeable future we will
primarily outsource to third parties the manufacturing of the
products we sell, and we cannot assure you that these third
parties will not experience work stoppages, strikes or slowdowns
in the future. A prolonged work stoppage, strike, or slowdown at
any of these facilities could have a material adverse effect on
our results of operations. Moreover, we cannot assure you that
we will not become subject to labor union organizing efforts. If
any of our operations unionize, we could incur increased risk of
work stoppages and possibly higher labor costs.
Insurance
policies may not cover all operating risks and a casualty loss
beyond the limits of our coverage could adversely impact our
business.
Our business is subject to all of the operating hazards and
risks normally incidental to handling, storing, and transporting
the products we sell. We maintain insurance policies in such
amounts and with such coverage and deductibles that we believe
are reasonable and prudent. Nevertheless, our insurance coverage
may not be adequate to protect us from all liabilities and
expenses that may arise from claims for personal injury or death
or property damage arising in the ordinary course of business,
and our current levels of insurance may not be able to be
maintained or available at economical prices. If a significant
liability claim is brought against us that is not covered by
insurance, we may have to pay the claim with our own funds,
which could have a material adverse effect on our business,
financial condition, and results of operations.
Our
current size and growth strategy could cause our revenues and
operating results to fluctuate more than some of our larger,
more established competitors or other public companies.
Our revenue is difficult to forecast and we believe it is likely
to fluctuate significantly from quarter to quarter as we
continue to grow. Some of the factors affecting our future
revenue and results, many of which will be outside of our
control and are discussed elsewhere in the Risk Factors, include:
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competitive conditions in our industry, including new products
and services, product announcements and incentive pricing
offered by our competitors;
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the ability to hire, train and retain sufficient sales and
professional services staff;
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the ability to develop and maintain relationships with partners,
franchisees, distributors, and service providers;
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the discretionary nature of our customers purchase and
budget cycles and changes in their budgets for, and timing of,
chemical, equipment and services purchases;
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the length and variability of the sales cycles for our products
and services;
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strategic decisions by us or our competitors, such as
acquisitions, divestitures, spin-offs, joint ventures, strategic
investments or changes in business strategy;
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our ability to complete our service obligations in a timely
manner; and
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timing of product development and new product and service
initiatives.
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Given our current amount of revenue, particularly as compared
with some of our competitors, even minor variations in the rate
and timing of conversion of our sales prospects into revenue
could cause us to plan or budget inaccurately, and have a
greater percentage impact on our results than the same
variations would have on our larger competitors.
In light of the foregoing,
quarter-to-quarter
comparisons of our operating results are not necessarily
representative of future results and should not be relied upon
as indications of likely future performance or annual operating
results. Any failure to achieve expected quarterly earnings per
share or other operating results could cause the market price of
our common shares to decline or have a material adverse effect
on our business, financial condition and results of operations.
performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our common
stock.
The
former stockholders of Swisher International will be able to
exert control over the corporate actions of Swisher
Hygiene.
The former Swisher International stockholders, including
Messrs. Huizenga and Berrard, own 48% of Swisher Hygiene
common stock on a fully diluted basis. As a result, these
stockholders may be in a position to exert control over all
matters requiring stockholder approval, including the election
of directors, determination of significant corporate actions,
amendments to Swishers certificate of incorporation and
by-laws, and the approval of any business transaction, such as
mergers or takeover attempts, in a manner that could conflict
with the interests of other stockholders. Although there are no
agreements or understandings between the former Swisher
International stockholders as to voting, if they voted in
concert, they would exert control over Swisher Hygiene.
Future
sales of Swisher Hygiene shares by former Swisher International
or CoolBrands stockholders could affect the market price of our
shares.
Of the Swisher Hygiene shares issued in the Merger,
55,789,632 shares issued to the former Swisher
International shareholders, including shares held by
H. Wayne Huizenga and Steven R. Berrard, are subject
to lock-up agreements. Pursuant to the lock-up agreements, the
locked-up shareholders will not, subject to certain exceptions,
offer, sell, contract to sell or enter into any other agreement
to transfer the economic consequences of any Swisher Hygiene
shares for a period ending the earlier of (i) the public
release of Swisher Hygienes earnings for the 2011
financial year or (ii) March 31, 2012. After the
lock-up
agreements relating to the Swisher Hygiene shares issued in the
Merger to the former Swisher International stockholders
terminate, the market price of Swisher Hygiene shares could
decline as a result of sales of our shares by former Swisher
International or CoolBrands stockholders, or the perception that
such sales could occur. These sales, or the perception that such
sales could occur, might also make it more difficult for Swisher
Hygiene to sell equity securities at a time and price that is
deemed appropriate. In addition, Swisher Hygiene may issue
additional shares of common stock as part of the purchase price
of future acquisitions or in connection with future financings.
Any actual sales, or any perception that sales of a substantial
number of shares may occur, could adversely affect the market
price of Swisher Hygiene common stock.
Provisions
of Delaware law and our organizational documents may delay or
prevent an acquisition of our company, even if the acquisition
would be beneficial to our stockholders.
Provisions of Delaware law and our certificate of incorporation
and bylaws may discourage, delay or prevent a change of control
that our stockholders may consider favorable, including
transactions in which stockholders might otherwise receive a
premium for their shares. These provisions may also prevent or
delay
11
attempts by stockholders to replace or remove management or
members of our board of directors. These provisions include:
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the absence of cumulative voting in the election of directors,
which means that the holders of a majority of our common stock
may elect all of the directors standing for election;
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the inability of our stockholders to call special meetings;
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the requirement that our stockholders provide advance notice
when nominating director candidates or proposing business to be
considered by the stockholders at an annual meeting of
stockholders;
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the ability of the our board of directors to make, alter or
repeal our bylaws;
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the requirement that the authorized number of directors be
changed only by resolution of the board of directors; and
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the inability of stockholders to act by written consent.
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USE OF
PROCEEDS
We are not selling any securities under this prospectus and we
will not receive any proceeds from the sale of shares by the
selling stockholders. To the extent any of the
5,500,000 warrants to purchase shares of our common stock
held by Mr. Serruya are exercised, we will receive the
$0.50 per share exercise price. If Mr. Serruya
exercises the warrants in full, we estimate that our net
proceeds will be approximately $2,750,000. We intend to use any
proceeds from warrant exercises for working capital and other
general corporate purposes. We cannot estimate how many, if any,
warrants Mr. Serruya will exercise.
DILUTION
Other then the shares underlying the warrants held by
Mr. Serruya, the shares of common stock to be sold by the
selling stockholders are currently issued and outstanding.
Accordingly, there will be no dilution to our existing
stockholders in connection with the offer and sale by the
selling stockholders of such shares of common stock under this
prospectus. If any of the warrants to purchase
5,500,000 shares of common stock are exercised, our
stockholders may experience a reduction in their ownership
interest in our Company, however such reduction would not be
material.
12
SELLING
STOCKHOLDERS
The selling stockholders may offer and sell from time to time up
to an aggregate of 75,429,597 shares of Swisher Hygiene
common stock that they own. These shares include
55,789,632 shares of common stock, currently subject to
lock-up agreements, which were issued to former shareholders of
Swisher International in the Merger, including shares held by
H. Wayne Huizenga and Steven R. Berrard.
Except as otherwise indicated, the following table sets forth
certain information with respect to the beneficial ownership of
our common stock including the names of the selling
stockholders, the number of shares of common stock known by the
company to be owned beneficially by the selling stockholders as
of December 10, 2010, the number of shares of our common
stock that may be offered by the selling stockholders pursuant
to this prospectus, the number of shares owned by the selling
stockholders after completion of the offering and the percentage
of shares to be owned by the selling stockholders after
completion of the offering. The table has been prepared based
upon a review of information furnished to us by or on behalf of
the selling stockholders.
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Percent of
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Shares of
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Common
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Stock Owned
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Stock to be
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by the
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Owned by the
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Shares of Stock
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Selling
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Selling
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to be Offered
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Stockholder
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Stockholder
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Shares of Stock
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for the Selling
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After
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After
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Name of Selling
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Owned Prior to
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Stockholders
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Completion of
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Completion of
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Stockholder
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Offering
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Account
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the Offering
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the Offering
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1082272 Ontario Inc.
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4,078,301
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(1)
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4,078,301
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(1)
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Thomas Aucamp
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1,300,265
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(2)
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1,300,265
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(2)
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Steven R. Berrard
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25,005,311
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(2)
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25,005,311
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(2)
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David Braley
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5,194,800
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5,194,800
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Cris Branden
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577,901
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(2)
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577,901
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(2)
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Thomas Byrne
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1,300,265
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(2)
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1,300,265
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(2)
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Romeo DeGasperis
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6,700
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6,700
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Richard Handley
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577,901
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(2)
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577,901
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(2)
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Robert Henninger
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577,901
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(2)
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577,901
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(2)
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H. Wayne Huizenga
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25,005,359
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(2)
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25,005,359
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(2)
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Jack Lynn
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288,927
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(2)
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288,927
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(2)
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Ken MacKenzie
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10,000
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10,000
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Alex Muxo
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577,901
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(2)
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577,901
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(2)
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William Pierce
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577,901
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(2)
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577,901
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(2)
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David Prussky
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243,000
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243,000
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Michael Rapoport
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1,499,999
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1,499,999
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Aaron Serruya
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133,665
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(3)
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133,665
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(3)
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Michael Serruya
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5,633,515
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(4)
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5,633,515
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(4)
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Philip Wagenheim
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499,999
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499,999
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Gateway ProClean, Inc.
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1,312,864
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(5)
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1,312,864
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(5)
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Lasfam Investments, Inc.
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1,027,122
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(6)
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1,027,122
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(6)
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(1) |
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1082272 Ontario Inc., an entity
owned 50% by Michael Serruya and 50% by his brother, Aaron
Serruya, owns 4,078,301 shares of common stock. Michael
Serruya is a director and President of 1082272 Ontario Inc., and
has investment power over 2,039,151 shares of common stock
held by 1082272 Ontario Inc. Aaron Serruya has investment power
over the remaining shares of common stock owned by 1082272
Ontario Inc.
|
|
|
|
(2) |
|
These shares are subject to lock-up
agreements. Pursuant to the lock-up agreements, the locked-up
shareholders will not, subject to certain exceptions, offer,
sell, contract to sell or enter into any other agreement to
transfer the economic consequences of any Swisher Hygiene shares
for a period ending the earlier of (i) the public release
of Swisher Hygienes earnings for the 2011 financial year
or (ii) March 31, 2012.
|
|
|
|
(3) |
|
The number of shares owned by Aaron
Serruya before the offering does not include shares owned by
1082272 Ontario Inc., as described in footnote one to this table.
|
13
|
|
|
(4) |
|
Includes the registration of shares
of common stock underlying warrants to purchase
5,500,000 shares of common stock. Of these warrants,
Mr. Michael Serruya is the beneficial owner of warrants to
purchase 299,776 shares of common stock, and
Mr. Michael Serruya holds the balance of such warrants on
behalf of and in trust for various members of the Serruya
family. The number of shares owned by Mr. Serruya before
the offering assumes the vesting and subsequent exercise by
Mr. Serruya of all warrants. The number of shares owned by
Mr. Serruya before the offering does not include shares
owned by 1082272 Ontario Inc., as described in footnote one to
this table.
|
|
|
|
(5) |
|
Registering the resale of shares
underlying a convertible promissory note issued in connection
with the acquisition of certain assets of Gateway ProClean, Inc.
|
|
|
|
(6) |
|
Registering the resale of shares
underlying a convertible promissory note issued in connection
with acquisition of certain assets of Lasfam Investments, Inc.
|
None of the selling stockholders has, or within the past three
years has had, any position, office or material relationship
with us or any of our predecessors or affiliates except as
follows:
|
|
|
|
|
Thomas Aucamp owns common stock in the company and served as
Executive Vice President of Swisher International from 2006 to
2010. Mr. Aucamp continues to serve as Executive Vice
President of the company, and has served as Secretary of the
company since November 2010.
|
|
|
|
Steven R. Berrard owns common stock of the company and
served as Chief Executive Officer and a director of Swisher
International from 2004 to 2010. Mr. Berrard continues to
serve as Chief Executive Officer and a director of the company.
|
|
|
|
David Braley owns common stock in the company and has served as
a director of the company since November 1, 2010.
|
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|
Cris Branden owns common stock in the company and served as a
director of Swisher International from 2004 to 2010.
|
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|
|
Thomas Byrne owns common stock in the company and served as
Executive Vice President of Swisher International from 2004 to
2010 and as a director of Swisher International from 2004 to
2010. Mr. Byrne continues to serve as Executive Vice
President of the company.
|
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|
|
Romeo DeGasperis owns common stock in the company and served as
a director of CoolBrands from November 2006 to 2010.
|
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|
|
Richard Handley owns common stock in the company and served as a
director of Swisher International from 2004 to 2010.
|
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|
H. Wayne Huizenga owns common stock in the company and has
served as a director of the company since November 1, 2010.
|
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Jack Lynn is an employee of Swisher Hygiene.
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Ken MacKenzie owns common stock in the company and served as the
Chief Financial Officer and Secretary of CoolBrands from April
2007 to 2010.
|
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|
Michael Rapoport and Philip Wagenheim worked at Broadband
Capital Management, the financial advisor to Swisher
International in connection with the Merger.
|
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|
David Prussky owns common stock in the company and served as a
director of CoolBrands from February 2010 to November 2010.
Mr. Prussky continues to serve as a director of the company.
|
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|
|
Aaron Serruya owns common stock in the company and was a
co-founder of CoolBrands.
|
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|
|
Michael Serruya owns common stock in the company and was a
co-founder of CoolBrands. Mr. Serruya was appointed a
director of CoolBrands in 1994 and served as President and Chief
Executive Officer of CoolBrands from 2006 to 2010.
Mr. Serruya continues to serve as a director of the company.
|
INFORMATION
WITH RESPECT TO THE REGISTRANT
Overview
Swisher Hygiene Inc., through its consolidated subsidiaries,
franchisees, and international licensees, provides hygiene
solutions to more than 35,000 customers throughout North America
and internationally through its network of company owned
operations, franchises, and master licenses. Our solutions
include products and services designed to promote superior
cleanliness and sanitation in commercial environments,
14
while enhancing the safety, satisfaction, and well-being of
employees and patrons. Our solutions are typically delivered on
a regularly scheduled basis and involve providing our customers
with: (i) the sale of consumable products such as soap,
paper, cleaning chemicals, detergents, and supplies, together
with the rental and servicing of dish machines and other
equipment for the dispensing of those products; (ii) the
rental of facility service items requiring regular maintenance
and cleaning, such as floor mats, mops, and bar towels; and
(iii) manual cleaning of their facilities. We serve
customers in a wide range of end-markets, with a particular
emphasis on the foodservice, hospitality, retail, industrial,
and healthcare industries.
Going forward, we intend to increase the sale of our products
and services to customers in existing geographic markets as well
as expand our reach into additional markets through a
combination of organic growth and the acquisition of Swisher
franchises, independent chemical service providers, and related
businesses.
We are a Delaware corporation, originally organized in Canada in
1994. Our principal executive offices are located at 4725
Piedmont Row Drive, Suite 400, Charlotte, North Carolina,
28210. The financial information about operating segments
appearing in Note 10 to the consolidated financial
statements in this registration statement is incorporated herein
by this reference.
Our
History
We were originally founded in 1986 as Swisher International,
Inc., a Nevada corporation. From our founding through 2004, we
operated primarily as a franchisor and licensor of restroom
hygiene services offering: (i) weekly cleaning and
sanitizing services of our customers restroom fixtures,
along with the restocking of soap and air freshener dispensers
and (ii) the sale of restroom paper products, such as
toilet paper and hand towels. We provided these services to a
customer base largely comprised of small, locally owned bars,
restaurants, and retail locations. Franchisees had exclusive
rights to use the Swisher name and business processes in
designated United States and Canadian geographic markets
typically ranging in size from 500,000 to
3,000,000 persons, while licensees had substantially
similar rights in the respective countries in which they
operated. Although franchisees licensed the same business model,
the manner in which they executed and adopted Swisher programs
varied greatly, resulting in historically inconsistent levels of
service and differing product offerings across geographic
markets.
In November 2004, H. Wayne Huizenga and Steve Berrard acquired a
majority interest in Swisher, which at the time was a publicly
traded company. Subsequently, in May 2006, Messrs. Huizenga
and Berrard acquired the remaining outstanding shares of Swisher
and began operating Swisher as a private company.
The primary goal of acquiring ownership of Swisher was to
transition the business to take greater advantage of the Swisher
brand and nationwide service and distribution network, and to
better leverage the under-utilized platform to expand both
product and service offerings. Specifically,
Messrs. Huizenga and Berrard planned to transition the
companys focus from generating revenue almost exclusively
from restroom cleaning services to building a full-service
hygiene solutions provider that offers a broad complement of
products and services, addressing the complete hygiene and
cleaning needs of our customers throughout their facilities. We
believed that such a transition would provide Swisher with a
competitive advantage, allowing us to retain existing customers
over time and provide them with additional products and services
that were essential to the operations of their businesses.
Moreover, we sought to leverage Swishers national
infrastructure with product offerings and service expertise in
core lines of products, including cleaning chemicals, required
by larger corporate customers nationwide.
An important component of this business strategy was the
acquisition of a sufficient number of franchise locations or
other similar businesses, providing us direct control over the
implementation of changes to a consistent business model. To
address this component of the business strategy,
Messrs. Huizenga and Berrard formed HB Service, LLC to
acquire franchises and related businesses under the Swisher
name. Through September 2010, HB Service acquired and operated
68 former franchises of the company and purchased nine other
related businesses. Effective July 13, 2010, HB Service
entered into a Contribution Agreement with the company pursuant
to which Messrs. Huizenga and Berrard contributed their
membership interests in HB
15
Service to the company, at which time HB Service became a
wholly-owned subsidiary of Swisher International.
By the end of 2005, through HB Service, we had acquired 26
franchisees and other related businesses and implemented a
long-range plan to increase the number and types of products we
offer. In addition, we discontinued the sale of new franchises,
replaced information systems, established a fleet of
company-owned vehicles, upgraded our facilities, hired
experienced route-based operations managers to develop
consistency in our operating model, expanded the geographic area
covered by our locations, and eliminated low volume customers
that were unprofitable or marginally profitable under our new
business model. During this time, acquisitions continued but at
a less aggressive pace, as we focused on executing the
aforementioned business strategies. By mid-2007, we had
purchased and converted to company-owned locations a total of 50
businesses, including 44 franchisees that represented 49.4% of
our
U.S.-based
franchises.
In the latter half of 2007 and first half of 2008, we focused
almost exclusively on rolling-out new information systems to
company-owned operations and franchisees alike, integrating the
disparate acquired business models into a centrally-managed
operation, which integration continued to include the
elimination of low volume customers that were not candidates to
purchase our increased suite of products and services. During
the period from mid-2007 through the end of 2008, we acquired
two franchises. It was during this period that we also first
began to experience the impact of the economic downturn, which
continues to impact our business and the businesses of our
customers. Our customers, many of whom operate in the
foodservice market, were particularly affected by the
contracting economy through reduced customer traffic and
spending. To address in part the financial difficulties
experienced by their businesses, these customers reduced their
discretionary spending on items such as our legacy restroom
cleaning business and delayed decisions to institute new
programs or add new products and services. As a result of these
economic conditions, coupled with our continual elimination of
small unprofitable and marginally profitable customers, our
operations, before giving effect to acquisitions, experienced a
1.9% decline in revenue in 2008 as compared to 2007, while
franchise fees and other revenue, before giving effect to
acquisitions, declined 6.5% in 2008 as compared to 2007.
Poor economic conditions continued during the first quarter of
2009; prompting us to aggressively accelerate a number of steps
we had taken to combat the decline in business. Specifically,
we: (i) reduced our field sales force, which primarily
called on smaller,
single-unit
customers; (ii) continued elimination of certain
unprofitable or marginally profitable customers by, in many
instances, introducing minimum stop charges or price increases;
(iii) eliminated certain customers that were payment or
credit risks; (iv) realigned our branch and corporate
workforce; and (v) reduced other costs. As a result,
company operations, before giving effect to acquisitions,
experienced a 13.6% decline in revenue in 2009 as compared to
2008, while franchise fees and other revenue, before giving
effect to acquisitions, declined 15.8% in 2009 as compared to
2008.
In the second half of 2009, we refocused our efforts on
positioning the company for future growth by: (i) investing
in our corporate account and distributor sales programs;
(ii) acquiring franchises to help leverage our field cost
structure and fill remaining geographic gaps in our service
delivery markets; and (iii) accelerating the development of
our chemical program to provide a comprehensive offering focused
on detergents, cleaners, and sanitizers used regularly by most
of our customers in their warewashing, laundry, and general
cleaning applications. We believe that our chemical program is a
key component of our future growth as these products are
necessary to maintain proper sanitation and cleanliness and
require dispensing equipment that we sell or rent, install, and
service on a regular basis to ensure proper dilution and
delivery of the chemicals. In addition, the purchase of chemical
products by our regional and national chain customers is
directed by corporate headquarters of those chains. As a result
of this and the fact that we have the ability to provide
chemical services throughout the continental U.S., the majority
of our new business now comes from larger regional or corporate
accounts as well as regional distributor partners.
In summary, our transition from a restroom cleaning services
business to a full service hygiene solutions provider offering a
complete chemical and facility service program has required
significant investments. These investments included:
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|
|
|
Acquisitions of 82 businesses, including 68 franchises;
|
16
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|
|
|
|
Replacement of management information systems;
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|
|
Introduction of delivery service vehicles;
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|
|
Addition of substantial industry experience throughout the
organization;
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|
Upgrade of branch facilities;
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|
|
Significant expansion of product lines and services to include
dust control and a complete chemical program; and
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|
|
Development of a corporate account and distributor sales
organization.
|
As a result of these investments, from January 1, 2005,
through September 30, 2010, Swisher has incurred cumulative
losses of $54,508,159. To help finance these losses and make the
investment necessary to create the platform we have today, which
we believe will enable us to experience significant growth and
profitability, Messrs. Huizenga and Berrard have
contributed and advanced the company $64,405,152 and the company
has incurred indebtedness of: (i) $24,946,932 under bank
lines of credit (ii) $12,981,798 in notes issued by Swisher
to sellers in connection with acquisitions made by Swisher (the
Seller Notes); and (iii) $4,122,915 of third
party financing for software development and capital leases for
equipment. Mr. Huizenga has guaranteed $20,000,000 of the
bank line of credit, and $3,050,000 of the Seller Notes are
secured by letters of credit. The letters of credit are secured
by certain assets of Messrs. Huizenga and Berrard.
As of the date of this registration statement, we have
68 company-owned locations and 11 franchises located
throughout the U.S. and Canada and we have entered into ten
master license agreements covering the United Kingdom
(U.K.), Ireland, Portugal, the Netherlands,
Singapore, the Philippines, Taiwan, Korea, Hong
Kong/Macau/China, and Mexico.
The number of company-owned locations, franchises, and
international master licenses since the end of 2006 through the
date of this registration statement is as follows:
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|
|
|
|
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|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Company-Owned Locations
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|
|
43
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|
|
|
47
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|
|
44
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|
|
|
60
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|
|
|
68
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|
Franchises
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45
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|
|
|
39
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35
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|
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15
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|
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11
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|
International Master
Licenses(1)
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13
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11
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|
11
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|
10
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|
|
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10
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|
|
|
|
(1) |
|
Number of countries in which Swisher licensees operate. |
Going forward, we will continue to expand our reach into
additional U.S. and Canadian geographic markets through
acquisitions of independent chemical distributors, franchise
repurchases, execution of agreements with distributor partners,
and organic growth. Additionally, we will be opportunistic as it
relates to acquiring or partnering with complementary businesses
that (i) can provide us a competitive advantage;
(ii) leverage, expand, or benefit from our distribution
network; or (iii) provide us economies of scale or cost
advantages over our existing supply chain. Collectively, these
efforts are centered on making us an attractive alternative for
larger customers in foodservice, hospitality, healthcare,
retail, and industrial markets. In addition, we will seek to
aggressively license our business model internationally. Our
success largely depends on our ability to execute on these
strategies and increase the sales of our products and services
to corporate accounts and distribution partners.
The
Merger
On November 1, 2010, Swisher Hygiene redomiciled to
Delaware from Canada, where it had been a publicly-traded
corporation, listed on the Toronto Stock Exchange (the
TSX) under the name CoolBrands International Inc.
(CoolBrands), and trading under the symbol
COB. We refer to this event as the Redomestication.
CoolBrands was a Canadian company that historically focused on
marketing and selling a broad range of ice creams and frozen
snacks. Since the end of the 2005 financial year, subsidiaries
of CoolBrands disposed of a majority of CoolBrands
business operations. Since that time, CoolBrands principal
operations consisted of
17
the management of its cash resources, reviewing and considering
potential opportunities to invest such cash resources.
CoolBrands held Cdn$63,034,359 in cash, cash equivalents and
short term investments at the effective time of the Merger.
One day after completion of the Redomestication, CoolBrands
Nevada, Inc. (CoolBrands Nevada), a wholly-owned
subsidiary of Swisher Hygiene, merged with and into Swisher
International, with Swisher International continuing as the
surviving corporation. We refer to this event as the Merger.
Pursuant to the Merger Agreement, at the effective time of the
Merger, the following steps took place, giving effect to the
Merger:
(a) the articles of incorporation and by-laws of Swisher
International that were in effect immediately before the Merger
became the articles of incorporation and by-laws of the
surviving entity, and the directors and officers of Swisher
International immediately before the Merger became the initial
directors and officers of the surviving entity;
(b) all shares of common stock of Swisher International
issued and outstanding immediately before the Merger were
cancelled and converted into 57,789,630 shares of common
stock of Swisher Hygiene; and
(c) each share of common stock of CoolBrands Nevada issued
and outstanding immediately before the Merger converted into one
share of common stock of the surviving entity, which is the only
outstanding share of common stock of Swisher International
following the Merger.
As a result of the Merger, Swisher International became a
wholly-owned subsidiary of Swisher Hygiene. Upon completion of
the Merger and the Redomestication, Swisher Hygiene inherited
the reporting issuer status of CoolBrands. Swisher
Hygienes shares of common stock began trading on the TSX
under the symbol SWI on November 4, 2010. As
CoolBrands was a reporting issuer (or equivalent) in each of the
provinces of Canada, Swisher Hygiene became a reporting issuer
in each of the provinces in Canada.
In the Merger, the former stockholders of Swisher International
received 57,789,630 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 48% ownership interest
in Swisher Hygiene. The stockholders of CoolBrands retained
56,225,433 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 52% ownership interest
in Swisher Hygiene. 55,789,632 of the shares issued to former
shareholders of Swisher International are subject to lock-up
agreements. Pursuant to the lock-up agreements, the locked-up
shareholders may not offer, sell, contract to sell or enter into
any other agreement to transfer the economic consequences of any
Swisher Hygiene shares for a period ending the earlier of
(i) the public release of Swisher Hygienes earnings
for the 2011 financial year or (ii) March 31, 2012.
Under the lock-up agreements, transfers may be made to family
members, trusts and similar entities for estate planning
purposes, and to affiliated entities that are wholly-owned by
the transferring shareholder. In each of these situations, the
recipient of the shares must execute an agreement stating that
the recipient is receiving and holding the shares subject to the
provisions of the lock-up agreement. Shareholders subject to the
lock-up agreement may also pledge the subject shares as
collateral for debt.
In accordance with the Merger Agreement, the Swisher Hygiene
Board of Directors consists of eight members, five of whom were
appointed by the former shareholders of Swisher International,
and three of whom were appointed by CoolBrands. Further,
following the merger, our executive officers consist entirely of
former officers and executive officers of Swisher International.
Accordingly, the former owners and management of Swisher
International have effective operating control of the combined
company.
The following chart shows the corporate structure of Swisher
Hygiene Inc. after the Merger, including its key shareholders
and its material subsidiaries and their respective jurisdictions
of incorporation. Percentage ownership of Swisher Hygiene is
based on 114,015,063 shares of common stock outstanding at
December 10, 2010.
18
Swisher Hygiene
Inc. Corporate Structure
Our
Market
We compete in many markets, including institutional and
industrial cleaning chemicals, foodservice chemicals, restroom
supply service, paper, and other facility products, including
floor mats and other facility service rental items. In each of
these markets, there are numerous participants ranging from
large multi-national companies to local and regional
competitors. The focus of our company-owned operations remains
the U.S. and Canada, however we may pursue new international
opportunities in the future through additional licensing, joint
ventures, or other forms of company expansion.
Based on our analysis of publicly available industry research
and trade reports, as well as our competitors public
filings, we estimate that the combined addressable market in the
U.S. and Canada for the products and services we currently offer
exceeds $37 billion, in aggregate, as the pie chart and
corresponding table below highlights.
19
|
|
|
|
|
Cleaning Chemicals
|
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$
|
15.0 Billion
|
|
Paper and Hand Care
|
|
$
|
10.0 Billion
|
|
Dust Control
|
|
$
|
5.0 Billion
|
|
Restroom Hygiene
|
|
$
|
3.0 Billion
|
|
First Aid
|
|
$
|
2.0 Billion
|
|
Other Hygiene
Products
|
|
$
|
2.0 Billion
|
|
|
|
(1) |
We consider the addressable market as our estimate
of the aggregate market potential of the products and services
we currently offer and is not necessarily indicative of the
actual market size today.
|
We believe our primary competitors in our legacy hygiene
services, paper, and facilities service rental market are large
facility service providers, as well as numerous small local and
regional providers, many of whom may focus on one particular
product offering, such as floor mat rental. The paper
distribution market for the customers we target not only has
competition among the providers listed above, but also from the
foodservice, broad-line and janitorial-sanitation distributors.
We believe the chemical, institutional, and industrial cleaning
chemical market is addressed both by large manufacturers as well
as a number of local and regional competitors. However, we
believe that we are one of the only competitors to maintain the
service employees necessary to effectively service national and
regional restaurant and other chains.
20
Our
Strategy
We believe we are well positioned to take advantage of the
markets we serve. Our ability to service customers throughout
the U.S. and parts of Canada, our broad customer base and
our strategy of combining a service-based platform with
opportunities to leverage internal and external distribution
capabilities, provide multiple avenues for organic revenue
growth. We believe our recently introduced service and product
offerings, including our warewash, laundry, and cleaning
chemical initiative will allow us to increase revenue through
existing customers, who will be able to benefit from the breadth
and depth of our current product and service offerings. We
expect to generate additional revenue with minimal incremental
fixed cost by adding new product and service customers within
our current route structure, providing the potential for
significant and profitable acquisition growth.
Organic
Growth
Government regulations focusing on hygiene, food safety, and
cleanliness have increased significantly locally, nationally and
worldwide. Climate change, water scarcity, and environmental
concerns have combined to create further demand for products,
services, and solutions designed to minimize waste and support
broader sustainability. In addition, many of our customers
require tailored cleaning solutions that can assist in reducing
labor, energy, and water use, and the costs related to cleaning,
sanitation and hygiene activities.
We intend to capitalize on these industry dynamics by offering
customers a one-stop shopping partner focused on
commercial hygiene. This entails leveraging our route-based
weekly cleaning service and restroom product platform with
additional complementary chemical and facility service products
and other services, particularly warewashing and laundry
detergents, and related products, cleaning chemicals, and
various cleaners, disinfectants and sanitizers regularly used by
our end customers. We believe our suite of products and services
is a customer-facing portfolio none of our competitors offer in
full and as a result the customer need not shop for its
commercial hygiene needs on a piece-meal basis. In addition, our
management believes that we provide our customers with more
frequent service, better results, and lower pricing than our
competitors. As a result, we believe we can increase our total
revenue per customer stop for such items and that we are well
positioned to secure new accounts.
Our national footprint and existing route structure provides us
with a highly scalable service infrastructure, which we believe
gives us a lower relative cost of service compared to local and
regional competitors, and an attractive margin on incremental
revenue from existing customers as well as revenue from new
customers. We also believe the current density of our routes
coupled with our
go-to-market
strategy of utilizing both third-party distributors and company
personnel to deliver products, provides us sufficient capacity
in our current route structure to efficiently service additional
customer locations with minimal, if any, incremental
infrastructure or personnel costs, while also reducing average
driver time, mileage and fuel costs incurred between customer
stops.
We believe that substantially all of the target accounts not
currently served by us are in markets currently served by our
route network. We also believe that at current capacity levels,
new customers acquired in our current service network would be
accretive to our earnings, with minimal need for network
expansion. Accordingly, as we grow our network, we expect our
scale and route density to further drive operating performance.
Acquisition
Growth
We believe the market for chemical service providers is highly
fragmented, with numerous local and regional competitors
accounting for a majority of the total market. As such, these
market participants do not benefit from economies of scale when
purchasing chemicals, offer a limited suite of products or
services and are unable to provide the necessary level of
support and customer service to larger regional and national
accounts.
We believe that with our differentiated service capabilities,
and national service infrastructure we can become the
acquiror of choice for these companies. Further,
given our nationwide footprint, and the minimal
21
incremental fixed cost and low integration complexity typically
associated with acquired revenue, we are able to acquire
incremental revenue at potentially attractive margins and
accretive multiples. We believe the margins realized on the
acquired revenues will allow us to enhance our overall operating
margins and generate increased equity returns for our
stockholders.
Our
Products and Services
We provide products and services to end-customers, through our
company-owned locations, and to our franchisees and licensees.
While we report sales to and royalty revenue from franchisees
and licensees separately, we utilize the same administrative and
management personnel to oversee the daily operations of our
franchisees and licensees.
Company-Owned
Operations
Our full-service hygiene solutions typically involve providing
our customers with: (i) the sale of consumable products
such as chemicals, soap and paper, together with the rental and
servicing of dish machines and other equipment for the
dispensing of those products; (ii) the rental of facility
service items requiring regular maintenance and cleaning, such
as floor mats, mops, and bar towels; and (iii) the
performance of manual cleaning processes. We serve customers in
a wide range of end-markets, with a particular emphasis on the
foodservice, hospitality, retail, industrial, and healthcare
industries. Many of our products are consumable and require the
use of a dispensing system installed by us. Our services on
those systems are typically preventative in nature and are
required on a regularly scheduled basis. We strive to position
ourselves to customers as the one-stop-shop for the
full breadth of products and services we offer. We believe this
comprehensive approach to providing complete hygiene solutions
to our customers, coupled with the rental, installation, and
service of dish machines and dispensing equipment that provide
rental income and require the use of our products helps provide
stability in our business and discourages customers from
switching vendors.
We typically enter into service agreements with customers
ranging from one to five years which outline the scope and
frequency of services we will provide, as well as the pricing of
any consumables or rental equipment or products the customer
requires. Given that we typically install, at no charge,
dispensers for many of the consumable products we sell to
customers, our service agreements usually provide for an early
termination fee.
Hygiene and Facility Service. Our legacy
business was restroom hygiene, offering a regularly scheduled
service that typically included cleaning the bowls, urinals, and
sinks in a restroom, the application of a germicide to such
surfaces to inhibit bacteria growth, and the restocking of
air-fresheners and soap dispensers, all for a fixed weekly fee.
Additionally, we managed the customers restroom paper
needs by providing and installing the tissue and hand towel
dispensers, and selling and re-stocking the paper in such
dispensers on an as-needed basis. This entire offering was
intended to supplement the daily janitorial or custodial
requirements of our customers and free customers from purchasing
and securing an inventory of paper products.
After the acquisition of Swisher by Messrs. Huizenga and
Berrard, we greatly modified and expanded our hygiene and
facility service business by un-bundling, where appropriate, the
air-freshener and soap sales from the overall service price in
order to economically provide more hygienic and sanitary single
use products. We also introduced a more complete line of
specialized soaps as well as various grades of paper and
associated dispensing options, including hands-free soap
dispensers. Additionally, we introduced a number of new
complementary products and solutions required by our customers
both inside and outside of restrooms, including power washing of
restrooms and other areas, and the rental and cleaning of floor
mats, mops, and linens.
These products and services are delivered to customers by our
employees in company vehicles. We utilize GPS technology to
monitor various driving habits, mileage, and vehicle diagnostic
information. In several markets, we operate our own laundry
processing facilities to maintain and clean rental items such as
floor mats, mops, and linens, while, in other markets where we
offer dust control, we outsource the processing to third parties.
22
Chemicals. Since early 2009, we have placed
particular emphasis on the development of our chemical offering,
particularly as it relates to warewashing and laundry solutions.
Warewashing products consist of cleaners and sanitizers for
washing glassware, flatware, dishes, foodservice utensils, and
kitchen equipment, while laundry products include detergents,
stain removers, fabric conditioners, softeners, and bleaches in
liquid, powder, and concentrated forms to clean items such as
bed linen, clothing, and table linen. Our warewashing and
laundry solutions are designed to address the needs of small and
large customers alike, ranging from single store operators to
multi-unit
chains and large resorts. We often consult with customers that
may have specialized needs or require custom programs to address
different fabric or soil types. For warewashing customers, we
sell, rent, lease, or make available, as well as install and
service, dishwashing machines, pre-rinse units, chemical
dispensing units, dish tables and racks, food handling and
storage products, and parts, while for customers using our
laundry services we offer various dispensing systems. We enter
into service agreements with customers using our chemical
services to whom we rent or lease equipment, provide
24 hour, seven
days-a-week
customer service, and perform regularly scheduled preventative
maintenance. Typically, these agreements require customers to
purchase from us all of the products used in the rented
equipment. The chemicals themselves may be delivered to the
customer by a Swisher technician or one of our distributor
partners; however, the service and maintenance is always
provided by a Swisher technician. We also provide a full line of
concentrated and
ready-to-use
chemicals and cleaning products. This product line includes
general purpose cleaners, disinfectants, detergents, oven and
grill cleaners, general surface degreasers, floor cleaners, and
specialty cleaning products, which when in concentrated form,
benefit from the use of a dilution system to ensure the proper
mix of chemicals for safe and effective use.
Chemical sales, which include our laundry, warewashing, and
concentrated and
ready-to-use
chemical products and cleaners, and soap, accounted for 18.2%,
10.8%, and 8.9% of consolidated net sales in 2009, 2008, and
2007, respectively. The sale of paper items, including hand
towels and tissue paper accounted for 20.3%, 19.9%, and 20.2% of
consolidated net sales in 2009, 2008, and 2007, respectively.
The service component of our hygiene and facility service
offering, which includes both the manual cleaning services as
well as service delivery fees, represented 29.2%, 31.0%, and
33.7% of consolidated net sales in 2009, 2008, and 2007,
respectively. The rental and other component of our business
consists of rental fees and ancillary other product sales and
represented 9.6%, 9.8%, and 6.3% of consolidated net sales in
the 2009, 2008, and 2007, respectively. We anticipate that over
time, our revenue from chemical sales will grow at a faster rate
than any of our other product lines.
Franchise
Operations
We currently have 11 franchisees located throughout the
U.S. and Canada as well as 10 master licensees
operating in the U.K., Ireland, Portugal, the Netherlands,
Singapore, the Philippines, Taiwan, Korea,
Hong Kong/Macau/China,
and Mexico.
We collect royalty, marketing,
and/or
business service fees from our franchisees and licensees in
exchange for maintaining and promoting the Swisher marks,
continuing to develop the Swisher offering, managing vendors and
sourcing new products, marketing and selling Swisher services to
prospective customers that may have locations in franchise
territories, and providing various ancillary services, including
billing and collections on their behalf. Franchisees are
obligated to buy most of the products used in their business
from us. Further discussion of revenue received from our
franchisees and licensees, including royalties, revenue from
product sales, and business service fees, is included in
Managements Discussion and Analysis of Financial Condition
and Results of Operations, included in this registration
statement.
Sales and
Distribution
We market and sell our products and services primarily through:
(i) our field sales group, including the service
technicians, which pursues new customers and offers existing
customers who typically operate single or several smaller
locations additional products and service; (ii) our
corporate account sales team, which focuses on larger regional
or national customers in the markets previously identified; and
(iii) independent third-party distributor partners.
23
Selling to a new corporate account is an involved and lengthy
process that includes either displacing an existing supplier of
the products and services or working with the customer to
centralize and consolidate disparate purchasing decisions. These
prospective customers often go through a vendor qualification
process that may involve multiple criteria, and we often work
with them in various test locations to validate both product
efficacy and our ability to deliver the services on a national
level. Additionally, large corporate accounts may operate via a
franchise network of their own; the selection process with such
corporate accounts may only result in a vendor qualification
allowing us the right to sell our products and services to their
franchisees. We believe that as we continue to grow, the time to
close such sales or qualify as a provider to franchisees of
corporate account prospects will shorten. To date, we have been
in vendor qualification processes with larger accounts that have
ranged from less than three months to over 12 months.
Contract terms on corporate account customers typically range
from three to five years and we generally provide all services
to these accounts, although our larger corporate accounts may
request that we deliver the consumable products through specific
distribution partners with whom they coordinate the delivery and
procurement of other products.
We believe expanding our distributor program provides up to an
additional $6 billion opportunity for organic growth. Sales
to and through distributors are targeted toward regional and
local foodservice and other distributors that are seeking not
only to leverage the revenue and margin they can drive by
increasing the number of products they deliver to each customer,
but also to provide such distributors a hook into
customers that reduces their customer attrition. Foodservice
distribution is a highly competitive business operating on low
margins and with minimal switching costs for their customers,
who generally only purchase commodities and widely manufactured
consumables. We work with distributors as their chemical
supplier, dispensing product, and dish machine provider,
including the service arm required for such equipment. As such,
the distributor can typically earn a higher profit margin on the
chemicals it sells to end customers as compared to its food
items. Moreover, a distributor partner is then able to market to
its end customers the service required to maintain
their dish machines and chemical dispensing equipment. This
service is provided by Swisher and documented under a separate
contract between Swisher and the end customer. In effect, by
Swisher partnering to be the service arm for the distributor, we
help to generate demand for our rental equipment and our
consumable products, while providing the distributor a
competitive advantage. We contract with distributors on an
exclusive or non-exclusive basis, depending on the markets they
serve and the size of their customer base.
With the exception of product sales delivered via distributors,
and select remote markets in the northern plains states,
including North and South Dakota, Idaho, and Montana, all of our
services and products in the U.S. are delivered through
delivery vehicles operated by company-owned branches and
franchisees. Our field-based sales force focuses its efforts on
increasing route density and lowering the average time and
distance traveled between stops, thereby reducing the average
cost per delivery and optimizing fixed cost absorption.
Customer
Dependence
Our business is not materially dependent upon a single customer,
and no one customer accounts for 10% or more of our consolidated
revenue. Our customer base ranges from large multi-national
companies to entrepreneurs who operate a single location. We
believe more than 50% of our revenue is attributable to
customers we consider as foodservice and hospitality related
customers, including quick-service and full-service restaurants.
Sources
and Availability of Raw Materials
We currently conduct limited manufacturing operations and
primarily purchase the products we sell from third-party
manufacturers and suppliers with whom we believe we have good
relations. Most of the items we sell are readily available from
multiple suppliers in the quantities and quality acceptable to
both us and our customers. We do not have any minimum annual or
other periodic purchase requirements with any vendors for any of
the finished goods products we use or sell. We are not currently
party to any agreement, including with our chemical
manufacturer, where we bear the commodity risk of the raw
materials used in manufacturing; however, nothing prevents
(i) the vendor trying to pass through the incremental costs
of raw materials or (ii) us
24
from considering alternative suppliers or vendors. We believe
the raw materials used by the manufacturers of the products we
currently sell, including petroleum-based surfactants,
detergents, solvents, chlorine, caustic soda, and paper, are
readily available; however, pricing pressure or temporary
shortages may from time to time arise, resulting in increased
costs and, we believe, under extreme conditions only, a loss in
revenue from our inability to sell certain products.
We purchased 43.4% and 58.1% of the chemicals required for
operations in 2009 and through the first ten months of 2010,
respectively, from one supplier that operates from a single
manufacturing location. We have contingency plans to outsource
production to other parties in the event that we need to, which
we believe could mitigate any disruptions in the supply of
chemicals from this supplier.
We recently acquired the assets of a small chemical
manufacturer, which will provide us limited production capacity
representing less than 5% of our current needs in certain
foodservice and laundry chemicals.
Patents,
Trademarks, Licenses and Franchises
We maintain a number of trademarks in the U.S., Canada and in
certain other countries. We believe that many of these
trademarks, including Swisher, the
Swisher design, the Swisher Hygiene
design, and the S design are important to our
business. Our trademark registrations in the U.S. are renewable
for ten-year successive terms and maintenance filings must be
made as follows: (i) for Swisher by January
2014, (ii) for the Swisher design by January
2013, (iii) for the Swisher Hygiene design by
April 2015, and (iv) for the S design by
February 2012. In Canada, we have agreed not to: (i) use
the word SWISHER in association with any wares/services relating
to or used in association with residential maid services other
than as depicted in our trademark application and (ii) use
the word SWISHER with our S design mark or by itself
as a trade mark at any time in association with wares/services
relating to or used in association with cleaning and sanitation
of restrooms in commercial buildings. Thus, our franchisees
operate as
SaniService®
in Canada. We own, have registered, or have applied to register
the Swisher trademark in every other country in which our
franchisees or licensees operate.
While most of the chemical products we sell have Swisher-branded
labeling and product names, we do not currently own or have
exclusive rights to their formulae. We believe the chemical
manufacturing industry has a sufficient number of both contract
and tolling manufacturers, many of whom have their own formulas
or chemists on staff, to provide us sufficient access to
products to support our business.
Seasonality
In the aggregate, our business is typically not seasonal in
nature, with revenue occurring relatively evenly throughout the
year. However, our operating results may fluctuate from quarter
to quarter or year to year due to factors beyond our control,
including unusual weather patterns or other events that
negatively impact the foodservice and hospitality industries.
The majority of our customers are in the restaurant or
hospitality industries, and the revenue we earn from these
customers is directly related to the number of patrons they
service. As such, events adversely affecting the business of the
customer may have an adverse impact on our business.
Regulatory
and Environmental
We are subject to numerous U.S. federal, state, local, and
foreign laws that regulate the manufacture, storage,
distribution, transportation, and labeling of many of our
products, including all of our disinfecting, sanitizing, and
antimicrobial products. Some of these laws require us to have
operating permits for our production facilities, warehouse
facilities, and operations. In the event of a violation of these
laws, we may be liable for damages and the costs of remedial
actions, and may also be subject to revocation, non-renewal, or
modification of our operating and discharge permits and
revocation of product registrations. While we have not yet been
subject to any such action, any revocation, non-renewal, or
modification may require us to cease or limit the sale of
products from one or more of our facilities and may have a
material adverse effect on our
25
business, financial condition, results of operations, and cash
flows. The environmental regulatory matters most significant to
us are discussed below.
Product
Registration and Compliance
Various U.S. federal, state, local, and foreign laws and
regulations govern some of our products and require us to
register our products and to comply with specified requirements.
In the U.S., we must register our sanitizing and disinfecting
products with the U.S. Environmental Protection Agency (the
EPA). When we register these products, or our
registered supplier if we are subregistering, we must also
submit to the EPA information regarding the chemistry,
toxicology, and antimicrobial efficacy for the agencys
review. Data must be identical to the claims stated on the
product label. In addition, each state where these products are
sold requires registration and payment of a fee.
Numerous U.S. federal, state, local, and foreign laws and
regulations relate to the sale of products containing
ingredients such as phosphorous, volatile organic compounds, or
other ingredients that may impact human health and the
environment. Specifically, the State of California has enacted
Proposition 65, which requires us to disclose specified
ingredient chemicals on the labels of our products. To date,
compliance with these laws and regulations has not had a
material adverse effect on our business, financial condition,
results of operations, or cash flows.
Occupational
Safety and Health
The Occupational Safety and Health Act of 1970, as amended
(OSHA), establishes certain employer
responsibilities, including maintenance of a workplace free of
recognized hazards likely to cause death or serious injury,
compliance with standards promulgated by OSHA, and various
record keeping, disclosure, and procedural requirements. Various
OSHA standards may apply to our operations. To date, compliance
with OSHA, and its regulations and standards, has not had a
material adverse effect on our business, financial condition,
results of operations, or cash flows.
Other
Environmental Regulation
We recently purchased a small manufacturing operation and we may
buy additional manufacturing capacity in the future. Many such
facilities are subject to various U.S. federal, state,
local, or foreign laws and regulations governing the discharge,
transportation, use, handling, storage, and disposal of
hazardous substances. In the U.S., these statutes include the
Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, and the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), as well
their similar state, local, and foreign laws. Because we may
potentially be a generator of hazardous wastes in the future,
we, along with any other person who disposes or arranges for the
disposal of our wastes, may be subject to financial exposure for
costs associated with an investigation and any remediation of
sites. Specifically, we would likely have exposure if we have
disposed or arranged for the disposal of hazardous wastes at
sites that become contaminated, even if we fully complied with
applicable environmental laws at the time of disposal. We
currently are unaware of any past action which may lead to any
liability, but, in the event we do ultimately have liability at
some point in the future for past or future actions, the costs
of compliance and remediation would likely have a material
adverse effect on our business, financial condition, results of
operations, or cash flows.
We believe that it is possible that, in the future, we will be
subject to more stringent environmental laws or regulations,
including those related to the reduction of greenhouse gas
emissions, which may result in new or additional restrictions
being imposed on our processing and distribution activities,
which may result in possible violations, substantial fines,
penalties, damages, or other significant costs. Notwithstanding
the fact that our recently-acquired manufacturing operations are
relatively small and currently provide us less than 5% of the
chemicals we use in our business, the potential cost to us
relating to environmental matters, including the cost of
complying with the foregoing potential laws or regulations and
remediation of contamination, is uncertain due to such factors
as the unknown magnitude and type of possible pollution and
clean-up
costs, the
26
complexity and evolving nature of laws and regulations,
including those outside the U.S., and the timing, variable
costs, and effectiveness of
clean-up
methods.
Employees
As of December 10, 2010, we had 706 employees. We are
not a party to any collective bargaining agreement and have
never experienced a work stoppage. We consider our employee
relations to be good.
Properties
We lease our current corporate headquarters facility in
Charlotte, North Carolina, pursuant to a lease expiring in
February 2017. As of November 12, 2010, we also lease
numerous facilities relating to our operations. These facilities
are located in the following 31 states: Alabama, Arizona,
California, Colorado, Connecticut, Florida, Georgia, Kansas,
Kentucky, Massachusetts, Maryland, Michigan, Minnesota,
Missouri, North Carolina, New Jersey, New Mexico, Nevada, New
York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Utah, Virginia, Washington, and
Wisconsin. We also lease facilities related to our Canadian
operations in Vancouver, British Columbia, Edmonton and Calgary,
Alberta, and Toronto, Ontario. These facilities consist
primarily of warehouses. We believe that our facilities are
sufficient for our current needs and are in good condition in
all material respects.
Legal
Proceedings
From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of
business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters
may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that
we believe will have a material adverse affect on our business,
financial condition or operating results.
Market
Price of and Dividends on the Registrants Common Equity
and Related Stockholder Matters
We are a reporting issuer in Canada and our common stock is
listed and posted for trading on the TSX under the trading
symbol SWI. Before the Merger was complete, we
traded on the TSX under the trading symbol COB. When
our Registration Statement on Form 10 becomes effective on
the day that is 60 days from the date of its filing, we
will become a public U.S. reporting company under the
Exchange Act. The
27
following table sets out the reported high and low sale prices
on the TSX for the periods indicated as reported by the exchange:
|
|
|
|
|
|
|
|
|
|
|
TSX
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.90
|
|
|
$
|
0.65
|
|
Second Quarter
|
|
$
|
0.84
|
|
|
$
|
0.66
|
|
Third Quarter
|
|
$
|
0.80
|
|
|
$
|
0.59
|
|
Fourth Quarter
|
|
$
|
0.61
|
|
|
$
|
0.26
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.64
|
|
|
$
|
0.38
|
|
Second Quarter
|
|
$
|
0.69
|
|
|
$
|
0.48
|
|
Third Quarter
|
|
$
|
0.84
|
|
|
$
|
0.55
|
|
Fourth Quarter
|
|
$
|
1.26
|
|
|
$
|
0.76
|
|
Fiscal Year 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
1.23
|
|
|
$
|
1.02
|
|
Second Quarter
|
|
$
|
1.54
|
|
|
$
|
1.04
|
|
Third Quarter
|
|
$
|
3.91
|
|
|
$
|
1.04
|
|
Fourth Quarter (through December 13, 2010)
|
|
$
|
5.97
|
|
|
$
|
3.32
|
|
On October 29, 2010, the last trading day before the
Redomestication, the last reported sale price of
CoolBrands common stock on the TSX was Cdn$4.09 ($4.01).
As of December 10, 2010, there were 114,015,063 shares
of common stock issued and outstanding. As of December 10,
2010 we had 1,014 registered stockholders of record.
We have not paid any cash dividends on our common stock and do
not plan to pay any cash dividends in the foreseeable future.
Our board of directors will determine our future dividend policy
on the basis of many factors, including results of operations,
capital requirements, and general business conditions.
Auditors
The consolidated financial statements of Swisher Hygiene Inc. at
and for the three years ended December 31, 2009 included in
this registration statement, to the extent and for the periods
indicated in their report, have been audited by Scharf
Pera & Co., PLLC (Scharf), independent
registered public accountants, and are included herein in
reliance upon the authority of such firm as experts in
accounting and auditing in giving such report. The offices of
Scharf are located at 4600 Park Road, Suite 112, Charlotte,
North Carolina 28209.
The consolidated financial statements of CoolBrands
International, Inc. as of August 31, 2010 and 2009 and for
each of the three years in the period ended August 31,
2010, included in this registration statement have been so
included in reliance on the report of PricewaterhouseCoopers LLP
(PWC), an independent registered public accounting
firm, given on the authority of such firm as experts in auditing
and accounting.
On November 2, 2010, we terminated the engagement of Scharf
as our independent registered public accounting firm. Our Audit
Committee recommended and approved the decision to terminate
Scharf. Scharfs reports on the financial statements of
Swisher International for the fiscal years ended
December 31, 2009 and December 31, 2008 did not
contain an adverse opinion nor a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with its audits of Swisher International financial
statements for the fiscal years ended December 31, 2009 and
December 31, 2008, and through the interim period ended
November 2, 2010, we have had no disagreements with Scharf
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Scharf,
28
would have caused Scharf to make a reference to the subject
matter of the disagreements in connection with its reports on
the consolidated financial statements for the fiscal years ended
December 31, 2009 and December 31, 2008.
A letter from Scharf dated November 16, 2010 is attached as
Exhibit 16.1 to this registration statement.
On November 1, 2010, we terminated the engagement of PWC as
our independent registered public accounting firm. Our Board of
Directors recommended and approved the decision to terminate
PWC. PWCs reports on the financial statements of
CoolBrands for the fiscal year ended August 31, 2010 and
August 31, 2009 did not contain an adverse opinion nor a
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
In connection with CoolBrands audits of its financial
statements for the fiscal years ended August 31, 2010 and
August 31, 2009, and through the interim period ended
November 1, 2010, we have had no disagreements with PWC on
any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of PWC, would
have caused PWC to make a reference to the subject matter of the
disagreements in connection with it reports on the consolidated
financial statements for the fiscal years ended August 31,
2010 and August 31, 2009.
Effective November 2, 2010, our Audit Committee engaged BDO
USA, LLP (BDO) as the Companys independent
registered public accountant for the fiscal year ended
December 31, 2010. Before engaging BDO, neither Swisher
Hygiene nor anyone acting on Swisher Hygienes behalf,
consulted BDO regarding the application of accounting principles
to a specific completed or contemplated transaction, or the type
of audit opinion that might be rendered on Swisher
Hygienes financial statements, and no written or oral
advice was provided that was an important factor considered by
Swisher Hygiene in reaching a decision as to any accounting,
auditing, or financial reporting issues.
SELECTED
FINANCIAL DATA
Selected condensed consolidated financial data for the
nine-months ended September 30, 2010 and 2009 and the years
ended December 31, 2009, 2008, 2007, 2006, and 2005 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Nine-Months Ended September 30,
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
45,953,570
|
|
|
$
|
41,673,220
|
|
|
$
|
56,814,024
|
|
|
$
|
64,108,891
|
|
|
$
|
65,190,254
|
|
|
$
|
54,707,906
|
|
|
$
|
35,998,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(6,496,523
|
)
|
|
$
|
(4,550,117
|
)
|
|
$
|
(6,814,482
|
)
|
|
$
|
(10,482,544
|
)
|
|
$
|
(9,271,518
|
)
|
|
$
|
(13,317,705
|
)
|
|
$
|
(3,350,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
7,500,159
|
|
|
$
|
(5,158,540
|
)
|
|
$
|
(7,258,989
|
)
|
|
$
|
(11,987,871
|
)
|
|
$
|
(10,568,357
|
)
|
|
$
|
(14,775,179
|
)
|
|
$
|
(3,259,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
(0.13
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(0.13
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
44,037,979
|
|
|
|
|
|
|
$
|
38,917,939
|
|
|
$
|
30,280,958
|
|
|
$
|
34,363,938
|
|
|
$
|
31,946,669
|
|
|
$
|
22,938,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity/(deficit)
|
|
$
|
(26,853,469
|
)
|
|
|
|
|
|
$
|
(19,455,206
|
)
|
|
$
|
(12,300,787
|
)
|
|
$
|
172,410
|
|
|
$
|
8,366,774
|
|
|
$
|
15,724,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
8,837,157
|
|
|
|
|
|
|
$
|
48,874,841
|
|
|
$
|
6,343,346
|
|
|
$
|
20,927,665
|
|
|
$
|
12,809,934
|
|
|
$
|
2,362,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in
conjunction with the Selected Financial Data above
and our consolidated financial statements and the related notes
thereto included in this registration statement beginning on
page F-1.
In addition to historical consolidated financial information,
this discussion contains forward-looking statements that reflect
our plans, estimates, and beliefs. Actual results could differ
from these expectations as a result of factors including those
described under the heading Risk Factors in this
registration statement.
Executive
Overview
Swisher Hygiene Inc. provides hygiene solutions to more than
35,000 customers throughout North America and internationally
through its network of company-owned operations, franchises, and
master licenses. Our solutions include products and services
designed to promote superior cleanliness and sanitation in
commercial environments, while enhancing the safety,
satisfaction, and well-being of employees and patrons. Our
solutions are typically delivered on a regularly scheduled basis
and involve providing our customers with: (i) the sale of
consumable products such as soap, paper, cleaning chemicals,
detergents, and supplies, together with the rental and servicing
of dish machines and other equipment for the dispensing of those
products; (ii) the rental of facility service items
requiring regular maintenance and cleaning, such as floor mats,
mops, and bar towels; and (iii) manual cleaning of their
facilities. We serve customers in a wide range of end-markets,
with a particular emphasis on the foodservice, hospitality,
retail, industrial, and healthcare industries.
Going forward, we intend to increase the sale of our products
and services to customers in existing geographic markets as well
as expand our reach into additional markets through a
combination of organic growth and the acquisition of Swisher
franchises, independent chemical service providers, and related
businesses.
History
of Swisher
We were originally founded in 1986 as Swisher International,
Inc., a Nevada corporation. From our founding through 2004, we
operated primarily as a franchisor and licensor of restroom
hygiene services offering: (i) weekly cleaning and
sanitizing services of our customers restroom fixtures,
along with the restocking of soap and air freshener dispensers
and (ii) the sale of restroom paper products, such as
toilet paper and hand towels. We provided these services to a
customer base largely comprised of small, locally owned bars,
restaurants and retail locations. Franchisees had exclusive
rights to use the Swisher name and business processes in
designated United States and Canadian geographic markets
typically ranging in size from 500,000 to
3,000,000 persons, while licensees had substantially
similar rights in the respective countries in which they
operated. Although franchisees licensed the same business model,
the manner in which they executed and adopted Swisher programs
varied greatly, resulting in historically inconsistent levels of
service and differing product offerings across geographic
markets.
In November 2004, H. Wayne Huizenga and Steve Berrard acquired a
majority interest in the company, which at the time was a
publicly traded company. Subsequently, in May 2006, Messrs.
Huizenga and Berrard acquired the remaining outstanding shares
of the company and began operating it as a private company.
The primary goal of acquiring ownership of the company was to
transition the business to take greater advantage of the Swisher
brand and nationwide service and distribution network, and to
better leverage the under-utilized platform to expand both
product and service offerings. Specifically,
Messrs. Huizenga and Berrard planned to transition the
companys focus from generating revenue almost exclusively
from restroom cleaning services to building a full-service
hygiene solutions provider that offers a broad complement of
products and services, addressing the complete hygiene and
cleaning needs of our customers throughout their facilities. We
believed that such a transition would provide the company with a
competitive advantage, allowing us to retain existing customers
over time and provide them with additional products and services
that were essential to the operations of their businesses.
Moreover, we sought to leverage Swishers national
30
infrastructure with product offerings and service expertise in
core lines of products, including cleaning chemicals, required
by larger corporate customers nationwide.
An important component of this business strategy was the
acquisition of a sufficient number of franchise locations or
other similar businesses, providing us direct control over the
implementation of changes to a consistent business model. To
address this component of the business strategy,
Messrs. Huizenga and Berrard formed HB Service, LLC to
acquire franchises and related businesses under the Swisher
name. Through September 2010, HB Service acquired and operated
68 former franchises of the company and purchased nine other
related businesses. Effective July 13, 2010, HB Service
entered into a Contribution Agreement with the company pursuant
to which Messrs. Huizenga and Berrard contributed their
membership interests in HB Service to the company, at which time
HB Service became a wholly-owned subsidiary of the company.
By the end of 2005, through HB Service, we had acquired 26
franchisees and other related businesses and implemented a
long-range plan to increase the number and types of products we
offer. In addition, we discontinued the sale of new franchises,
replaced information systems, established a fleet of
company-owned vehicles, upgraded our facilities, hired
experienced route-based operations managers to develop
consistency in our operating model, expanded the geographic area
covered by our locations, and eliminated low volume customers
that were unprofitable or marginally profitable under our new
business model. During this time, acquisitions continued but at
a less aggressive pace, as we focused on executing the
aforementioned business strategies. By mid-2007, we had
purchased and converted to company-owned locations a total of
50 businesses, including 44 franchisees that represented
49.4% of our
U.S.-based
franchises.
In the latter half of 2007 and first half of 2008, we focused
almost exclusively on rolling-out new information systems to
company-owned operations and franchisees alike, integrating the
disparate acquired business models into a centrally-managed
operation, which integration continued to include the
elimination of low volume customers that were not candidates to
purchase our increased suite of products and services. During
the period from mid-2007 through the end of 2008, we acquired
two franchises. It was during this period that we also first
began to experience the impact of the economic downturn, which
continues to impact our business and the businesses of our
customers. Our customers, many of whom operate in the
foodservice market, were particularly affected by the
contracting economy through reduced customer traffic and
spending. To address in part the financial difficulties
experienced by their businesses, these customers reduced their
discretionary spending on items such as our legacy restroom
cleaning business and delayed decisions to institute new
programs or add new products and services. As a result of these
economic conditions, coupled with our continual elimination of
small unprofitable and marginally profitable customers, our
operations, before giving effect to acquisitions, experienced a
1.9% decline in revenue in 2008 as compared to 2007, while
franchise fees and other revenue, before giving effect to
acquisitions, declined 6.5% in 2008 as compared to 2007.
Poor economic conditions continued during the first quarter of
2009; prompting us to aggressively accelerate a number of steps
we had taken to combat the decline in business. Specifically,
we: (i) reduced our field sales force, which primarily
called on smaller,
single-unit
customers; (ii) continued elimination of certain
unprofitable or marginally profitable customers by, in many
instances, introducing minimum stop charges or price increases;
(iii) eliminated certain customers that were payment or
credit risks; (iv) realigned our branch and corporate
workforce; and (v) reduced other costs. As a result,
company operations, before giving effect to acquisitions,
experienced a 13.6% decline in revenue in 2009 as compared to
2008, while franchise fees and other revenue, before giving
effect to acquisitions, declined 15.8% in 2009 as compared to
2008.
In the second half of 2009, we refocused our efforts on
positioning the company for future growth by: (i) investing
in our corporate account and distributor sales programs;
(ii) acquiring franchises to help leverage our field cost
structure and fill remaining geographic gaps in our service
delivery markets; and (iii) accelerating the development of
our chemical program to provide a comprehensive offering focused
on detergents, cleaners, and sanitizers used regularly by most
of our customers in their warewashing, laundry, and general
cleaning applications. We believe that our chemical program is a
key component of our future growth as these products are
necessary to maintain proper sanitation and cleanliness and
require dispensing equipment that we sell or rent, install, and
service on a regular basis to ensure proper dilution and
delivery of the chemicals. In addition,
31
the purchase of chemical products by our regional and national
chain customers is directed by corporate headquarters of those
chains. As a result of this and the fact that we have the
ability to provide chemical services throughout the continental
U.S., the majority of our new business now comes from larger
regional or corporate accounts as well as regional distributor
partners.
In summary, our transition from a restroom cleaning services
business to a full service hygiene solutions provider offering a
complete chemical and facility service program has required
significant investments. These investments included:
|
|
|
|
|
Acquisitions of 82 businesses, including 68 franchises;
|
|
|
|
|
|
Replacement of management information systems;
|
|
|
|
Introduction of delivery service vehicles;
|
|
|
|
Addition of substantial industry experience throughout the
organization;
|
|
|
|
Upgrade of branch facilities;
|
|
|
|
Significant expansion of product lines and services to include
dust control and a complete chemical program; and
|
|
|
|
Development of a corporate account and distributor sales
organization.
|
As a result of these investments, from January 1, 2005,
through September 30, 2010, the company has incurred
cumulative losses of $54,508,159. To help finance these losses
and make the investment necessary to create the platform we have
today, which we believe will enable us to experience significant
growth and profitability, Messrs. Huizenga and Berrard have
contributed and advanced the company $64,405,152 and the company
has incurred indebtedness of: (i) $24,946,932 under bank
lines of credit; (ii) $12,981,798 in notes issued by
Swisher to sellers in connection with acquisitions made by the
company (the Seller Notes); and
(iii) $4,122,915 of third party financing for software
development and capital leases for equipment. Mr. Huizenga
has guaranteed $20,000,000 of the bank line of credit, and
$3,050,000 of the Seller Notes are secured by letters of credit.
The letters of credit are secured by certain assets of
Messrs. Huizenga and Berrard.
On November 2, 2010, Swisher International completed the
Merger with Swisher Hygiene, through a merger with a
wholly-owned subsidiary of Swisher Hygiene. Immediately before
the Merger, Swisher Hygiene completed its Redomestication to
Delaware from Ontario, Canada, where it had been a
publicly-traded corporation, listed on the TSX under the name
CoolBrands International Inc., and trading under the symbol
COB. In the Merger, the former stockholders of
Swisher International received 57,789,630 shares of Swisher
Hygiene common stock, representing, on a fully diluted basis, a
48% ownership interest in Swisher Hygiene. The stockholders of
CoolBrands retained 52% of the company. As a result of the
Merger, Swisher International is a wholly-owned subsidiary of
Swisher Hygiene. Swisher Hygiene will continue to trade on the
TSX under the symbol SWI.
In accordance with the Merger Agreement, the board of directors
consists of eight members, five of whom were appointed by the
former shareholders of Swisher International, and three of whom
were appointed by CoolBrands. Further, following the merger, the
executive officers of the Company consist entirely of former
officers and executive officers of Swisher International.
Accordingly, the former owners and management of Swisher
International have effective operating control of the combined
company.
The Merger is accounted for as a reverse recapitalization with a
non-operating company, which essentially accounts for the
issuance of stock by a private company in consideration of the
net monetary assets of the non-operating company, with the
balance sheet recapitalized to reflect the stock issuance. The
transaction is recorded at book value and no goodwill or
intangible assets are recognized.
As of the date of this registration statement, we have
68 company-owned locations and 11 franchises located
throughout the United States and Canada and we have entered into
10 master license agreements
32
covering the United Kingdom, Ireland, Portugal, the Netherlands,
Singapore, the Philippines, Taiwan, Korea, Hong
Kong/Macau/China, and Mexico.
The number of company-owned locations, franchises, and
international master licenses since the end of 2006 through the
date of this registration statement is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Company-owned Locations
|
|
|
43
|
|
|
|
47
|
|
|
|
44
|
|
|
|
60
|
|
|
|
68
|
|
Franchises
|
|
|
45
|
|
|
|
39
|
|
|
|
35
|
|
|
|
15
|
|
|
|
12
|
|
International Master
Licenses(1)
|
|
|
13
|
|
|
|
11
|
|
|
|
11
|
|
|
|
10
|
|
|
|
11
|
|
|
|
|
(1) |
|
Number of countries in which Swisher licensees operate. |
Going forward, we will continue to expand our reach into
additional U.S. and Canadian geographic markets through
acquisitions of independent chemical distributors, franchise
repurchases, execution of agreements with distributor partners,
and organic growth. Additionally, we will be opportunistic as it
relates to acquiring or partnering with complementary businesses
that (i) can provide us a competitive advantage;
(ii) leverage, expand or benefit from our distribution
network; or (iii) provide us economies of scale or cost
advantages over our existing supply chain. Collectively, these
efforts are centered on making us an attractive alternative to
larger customers in foodservice, hospitality, healthcare,
retail, and industrial markets. In addition, we will seek to
aggressively license our business model internationally. Our
success largely depends on our ability to execute on these
strategies and the successful penetration of our products and
services to corporate accounts and distribution partners.
Recent
Developments
On November 2, 2010, our board of directors approved the
Swisher Hygiene Inc. 2010 Stock Incentive Plan (the
Plan) to attract, retain, motivate and reward key
officers and employees. The Plan, which is subject to
stockholder and TSX approval, allows for grant of stock options,
restricted stock units and other equity instruments up to a
total of 6,000,000 shares of our common stock. Under the
Plan, the board approved awards of options to purchase
1,001,137 shares of our common stock. The options vest in
four equal annual installments beginning on the first
anniversary of the grant date and are exercisable at $4.18 per
share. The options expire in 2020. The board also approved the
award of 2,507,449 restricted stock units at $4.18 per
share. The restricted stock units vest in four equal annual
installments beginning on the first anniversary of the grant
date.
On November 8, 2010, we acquired the business operations
and selected net assets of Gateway ProClean, Inc.
(Gateway), a St. Louis-based hygiene and
chemicals company for $7,536,000 including $2,000,000 in cash,
$5,000,000 in a secured, convertible promissory note and the
assumption of $536,000 of bank and other trade debt. The
promissory note matures on June 30, 2011 and has a fixed
interest rate of 4%. During the term of the note, at the option
of the holder and subject to the effectiveness of a registration
statement providing for the resale of the shares of common stock
issuable upon conversion of the note, the promissory note may be
converted into common stock based on a fixed conversion price of
$3.81 per share. The maximum number of shares issuable upon
conversion is 1,312,864 shares of our common stock.
On December 7, 2010, the company acquired the business
operations and selected net assets of Lasfam Investments, Inc.
(Lasfam) for $5,566,400, including $1,669,920 in
cash and a $3,896,480 convertible promissory note that matures
on June 30, 2011 and has a fixed interest rate of 4%.
During the term of the note, at the option of the holder and
subject to the effectiveness of a registration statement
providing for the resale of the shares of common stock issuable
upon conversion of the note, the promissory note may be
converted into common stock based on a fixed conversion price of
$3.88 per share. After April 7, 2011, the note may be
converted into shares of common stock at a fixed conversion
price of $3.88 per share, if a resale registration statement
relating to the shares of Swisher Hygiene of common stock
issuable upon conversion of the note is effective and our common
stock trades on the Toronto Stock Exchange or any other North
American stock exchange for ten consecutive trading days at a
combined total volume weighted average price equal to or
exceeding 105% of the fixed conversion price. If the note is not
converted, the Company may
33
settle the fixed obligation (principal value of the note and
accrued but unpaid interest) in cash, shares or a combination
thereof, provided that at least 50% of the balance owed is paid
in cash, based on the stocks trading price on the day
before maturity. The maximum number of shares issuable in
repayment of the note is 1,027,122 shares.
Gateway and Lasfam are two of eight acquisitions we have made
since announcing our business transaction with Coolbrands on
August 18, 2010. The other acquisitions include three
independent chemical service companies, Total Cost Systems in
Florida, ChemWest in Northern California, and SunState Chemical
in Florida, as well as three franchisees of Swisher located in
Toronto, Calgary and Edmonton, each of which operate under the
Sani-Service brand.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The discussion of the financial condition and the results of
operations are based on the consolidated financial statements,
which have been prepared in conformity with United States
generally accepted accounting principles. As such, management is
required to make certain estimates, judgments and assumptions
that are believed to be reasonable based on the information
available. These estimates and assumptions affect the reported
amount of assets and liabilities, revenue and expenses, and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results may differ from these
estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, the most
important and pervasive accounting policies used and areas most
sensitive to material changes from external factors. See
Note 2 to the Consolidated Financial Statements for
additional discussion of the application of these and other
accounting policies.
Accounts
Receivable
Accounts receivable consist of amounts due from customers for
product sales and services as well as from franchisees and
master licensees for product sales, royalties and fees for
marketing and administrative services. Accounts receivable are
reported net of an allowance for doubtful accounts. The
allowance is managements best estimate of uncollectible
amounts and is based on a number of factors, including overall
credit quality, age of outstanding balances, historical
write-off experience and specific account analysis that projects
the ultimate collectability of the outstanding balances. The
Company does not accrue interest on past due accounts and
records an adjustment to write-off balances once all reasonable
efforts to collect have been exhausted. As of December 31,
2009 and 2008, and the nine-months ended September 30,
2010, the allowance for doubtful accounts was $334,156, $564,635
and $385,630, respectively. We believe that our allowance for
doubtful accounts is a critical accounting estimate because it
is susceptible to change and dependence upon events that may or
may not occur. The impact of recognizing additional allowances
for doubtful accounts may be material to the assets reported on
our balance sheet and in our results of operations.
Inventory
Inventories are stated at the lower of cost or market determined
using the first in-first out (FIFO) cost method. We routinely
review inventory for excess and slow moving items as well as for
damaged or otherwise obsolete items and for items selling at
negative margins. When such items are identified, a reserve is
recorded to adjust their carrying value to their estimated net
realizable value. We believe that the development of such
inventory reserves is a critical accounting estimate because
they are susceptible to change and dependence upon events that
may or may not occur. The impact of recognizing additional
inventory reserves may be material to the assets reported on our
balance sheet and in our results of operations.
Notes
Receivable
Notes receivable consist of amounts due from franchisees and
master licensees. Notes receivable are reported net of an
allowance for doubtful accounts. The allowance is
managements best estimate of uncollectible amounts and is
based on a number of factors including overall franchisee or
master licensee credit quality, historical write-off experience
and specific account analysis that projects the ultimate
34
collectability of the outstanding balances. As of
December 31, 2009 and 2008, and the nine-months ended
September 30, 2010, the allowance was $357,261. We believe
that the recovery of the reported value of our notes receivable
is a critical accounting estimate because it is susceptible to
the future operating performance of master licensee and other
events.
Goodwill
and Other Intangible Assets
The cost of acquisitions in excess of the fair value of the
identifiable net assets acquired is recorded as goodwill and
allocated to the respective branch locations, which represent
the companys defined reporting units (there were in excess
of 50 defined reporting units as of September 30,
2010) in accordance with Accounting Standards Codification
(ASC) 350, Goodwill and Other Intangible
Assets. Other intangible assets include acquired customer
relationships and non-compete agreements. The fair value of
these intangible assets at the time of acquisition is estimated
based upon discounted future cash flow projections. The customer
relationships are amortized on a straight-line basis over the
expected average life of the acquired accounts, which is five
years. The non-compete agreements are amortized on a
straight-line basis over the term of the agreements, which are
between two to five years.
Pursuant to the requirements of ASC 350, we are required to
perform a valuation of each of our reporting units annually, or
upon significant changes in our business environment. We
conducted our annual impairment analysis in the fourth quarter
of 2009. To determine the fair value of each reporting unit we
utilized discounted cash flows using five years of projected
unleveraged free cash flows and a terminal value. The discount
rates used for the analysis reflected a weighted average cost of
capital based on industry and capital structure adjusted for
equity and size risk premiums. Expected cash flows are based on
historical customer growth, including attrition, and continued
long term growth of the business. These estimates can be
affected by factors such as customer growth, pricing, and
economic conditions that can be difficult to predict. The fair
value of each reporting unit exceeded its carrying value as of
the fourth quarter of 2009.
As of the fourth quarter of 2009 less than 7% of the reporting
units had fair values that exceeded the carrying value by less
than 100% of the carrying value. Those reporting units with fair
values in excess of carrying values, but by less than 100% have
a combined recorded goodwill value of $5,749,811 and average
fair value in excess of 65% over carrying value as of
December 31, 2009. Management does not believe this
presents a material risk for impairment.
The company also performs tests of other intangible assets for
impairment on an annual basis or when circumstances change that
would more likely than not reduce the fair value of the
intangible assets to an amount that is less than its carrying
amount. As part of this impairment testing, management also
assesses the useful lives assigned to the customer relationships
and non-compete agreements considering actual historical
customer attrition rates.
For the years ended December 31, 2009, 2008, 2007,
impairment losses on goodwill and other intangible assets was
$30,000, $223,000, and $131,000 respectively. There were no
impairment losses on goodwill and other intangible assets for
the nine-months ended September 30, 2010. We believe that
the assessment for such potential impairment losses is a
critical accounting estimate as it is dependent upon future
events and requires substantial judgment. Any resulting
impairment loss could have a material impact on our financial
condition and the results of operations.
Long-lived
Assets
In accordance with Financial Accounting Standards Board
(FASB)
ASC 360-10-35
Impairment or Disposal of Long-lived Assets, losses
related to the impairment of long-lived assets are recognized
when the carrying amount is not recoverable and exceeds its fair
value. When facts and circumstances indicate that the carrying
values of long-lived assets may be impaired, management of the
company evaluates recoverability by comparing the carrying value
of the assets to projected future cash flows, in addition to
other qualitative and quantitative analyses. The company also
performs a periodic assessment of the useful lives assigned to
the intangible assets. We believe that this impairment
assessment represents a critical accounting policy as it is
35
dependent on future events and may require substantial
judgement. Any resulting impairment loss could have a material
impact on our financial condition and the results of operations.
Non-controlling
Interest
In the majority of its acquisitions, the company acquires 100%
of the business being acquired. However, in a few instances, the
former owner retains a non-controlling interest in the acquired
business. Profit and loss are allocated to the non-controlling
interest based on its pro-rata share.
Revenue
Recognition
Revenue from product sales and services is recognized when the
services are performed or the products are delivered to the
customer, provided that persuasive evidence of a sales
arrangement exists, both title and risk of loss have passed to
the customer, and collection is reasonably assured. For
arrangements with multiple deliverables, revenues are recognized
based on the fair value for each unit of accounting, as
determined by the price charged for each element when sold
separately. Franchise and other revenue include product sales,
royalties and other fees charged to franchisees in accordance
with the terms of their franchise agreements. Royalties and fees
are recognized when earned.
The company has entered into franchise and license agreements,
which grant the exclusive right to develop and operate within
specified geographic territories for a fee. The initial
franchise or license fee is deferred and recognized as revenue
when substantially all significant services to be provided by
the company are performed. Direct incremental costs related to
franchise or license sales for which revenue has not been
recognized is deferred until the related revenue is recognized.
Income
Taxes
Effective on January 1, 2007, the companys
shareholders elected that the corporation be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986,
as amended (the Code). Under this provision, the
shareholders were taxed on their proportionate share of the
companys taxable income. As a Subchapter
S corporation, the company bore no liability or expense for
income taxes. As a result of the Merger, the companys
Subchapter S election terminated, and the company became a
C corporation. For state income tax purposes, the company
has net operating losses of approximately $2,247,000, which
begin to expire in 2017. It is expected that these net operating
losses will be available for use after the Merger.
HB Service, LLC is a limited liability company that
reported as a partnership under the Code from January 1,
2007 until Messrs. Huizenga and Berrard contributed 100% of
their equity interests of the company in July 2010. Under these
provisions, the members are taxed on the limited liability
companys taxable income.
As a result of becoming a C corporation, the cumulative
timing differences between book income and taxable income will
be recorded as of November 2, 2010, the closing date of the
Merger. Thereafter, the company will provide for the tax effects
of transactions reported in the statements of operations, which
will include taxes currently due plus deferred taxes related
primarily to differences between the bases of certain assets and
liabilities for financial and tax reporting purposes. Deferred
tax assets that arise from net operating loses will receive a
full valuation allowance until such time as the company
considers it likely that such assets will be utilized.
FASB
ASC 740-10,
Income Taxes, clarifies the accounting for income
taxes, by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the
balance sheet. It also provides guidance on derecognition,
measurement and classification of amounts related to uncertain
tax positions, accounting for and disclosure of interest and
penalties, accounting in interim period disclosures and
transition relating to the adoption of new accounting standards.
Under FASB
ASC 740-10,
the recognition for uncertain tax positions should be based on a
more likely than not threshold that the tax position will be
sustained upon audit. The tax position is measured as the
largest amount of benefit that has a greater than fifty percent
probability of being realized upon settlement.
36
Foreign
Currency Translation
Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. The effect of exchange rate
fluctuations on translation of assets and liabilities at the
balance sheet date are recorded as a component of
stockholders equity as other comprehensive income or loss.
Amounts transferred from cumulative comprehensive income or loss
upon the sale or liquidation of an investment in a foreign
entity is reported as part of the gain or loss on sale or
liquidation. Results of operations for foreign operations are
translated using the average exchange rates throughout the
period.
Fair
Value of Financial Instruments
At December 31, 2009 and 2008, and the nine-months ended
September 30, 2010, the company did not have any
outstanding financial derivative instruments. The carrying
amounts of cash and the current portion of accounts and notes
receivable approximate fair value due to the short maturity of
these instruments. The non-current notes receivable are
presented at fair value due to rates generally being at current
market rates. The fair value of the companys long-term
debt, estimated based on the current borrowing rates available
to the company for bank loans with similar terms and maturities,
approximates the carrying value of these liabilities.
Loss per
Share
Basic and diluted loss per share was computed by dividing net
loss less non-controlling interest by the weighted average
number of common shares and common share equivalents (when the
inclusion of such shares is not anti-dilutive) outstanding
during the year.
37
SWISHER
HYGIENE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2010 AS COMPARED TO THE
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Months Ended September 30,
|
|
|
|
2010
|
|
|
%(1)
|
|
|
2009
|
|
|
%(1)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and services
|
|
$
|
13,922,134
|
|
|
|
86.7
|
%
|
|
$
|
11,376,973
|
|
|
|
78.8
|
%
|
Franchise and other
|
|
|
2,138,945
|
|
|
|
13.3
|
%
|
|
|
3,054,293
|
|
|
|
21.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
16,061,079
|
|
|
|
100.0
|
%
|
|
|
14,431,266
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
6,107,686
|
|
|
|
38.0
|
%
|
|
|
5,810,276
|
|
|
|
40.3
|
%
|
Route expenses
|
|
|
3,511,409
|
|
|
|
25.2
|
%
|
|
|
3,174,906
|
|
|
|
27.9
|
%
|
Selling, general and administrative
|
|
|
7,521,046
|
|
|
|
46.8
|
%
|
|
|
6,368,549
|
|
|
|
44.1
|
%
|
Merger-related expenses
|
|
|
1,425,855
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Depreciation and amortization
|
|
|
1,272,266
|
|
|
|
7.9
|
%
|
|
|
1,180,348
|
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
19,838,262
|
|
|
|
123.5
|
%
|
|
|
16,534,079
|
|
|
|
114.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(3,777,183
|
)
|
|
|
(23.5
|
)%
|
|
|
(2,102,813
|
)
|
|
|
(14.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
13,196
|
|
|
|
0.0
|
%
|
|
|
41,171
|
|
|
|
0.3
|
%
|
Interest expense
|
|
|
(371,093
|
)
|
|
|
(2.3
|
)%
|
|
|
(257,640
|
)
|
|
|
(1.8
|
)%
|
Gain from bargain purchases
|
|
|
|
|
|
|
|
|
|
|
56,670
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(357,897
|
)
|
|
|
(2.3
|
)%
|
|
|
(159,799
|
)
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(4,135,080
|
)
|
|
|
(25.8
|
)%
|
|
|
(2,262,612
|
)
|
|
|
(15.7
|
)%
|
Net (Income) Attributable to Noncontrolling Equity
Interest
|
|
|
(5,393
|
)
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Swisher Hygiene Inc.
|
|
$
|
(4,140,473
|
)
|
|
|
(25.8
|
)%
|
|
$
|
(2,262,612
|
)
|
|
|
(15.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
Company-owned locations
|
|
|
65
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Franchises
|
|
|
12
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
International Master Licenses
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated as a percentage of total revenue, except for Route
expenses which are calculated as a percentage of Product and
services revenue, as route expenses relate solely to Product and
services revenue from operations. |
38
Revenue
Total revenue and the revenue derived from each revenue type for
the three-months ended September 30, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene services
|
|
|
4,341,867
|
|
|
|
27.0
|
%
|
|
|
4,238,000
|
|
|
|
29.4
|
%
|
Chemical
|
|
|
4,728,506
|
|
|
|
29.4
|
%
|
|
|
2,812,112
|
|
|
|
19.5
|
%
|
Paper
|
|
|
3,135,244
|
|
|
|
19.5
|
%
|
|
|
2,855,327
|
|
|
|
19.8
|
%
|
Rental and other
|
|
|
1,716,517
|
|
|
|
10.7
|
%
|
|
|
1,471,534
|
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total products and service
|
|
$
|
13,922,134
|
|
|
|
86.7
|
%
|
|
$
|
11,376,973
|
|
|
|
78.8
|
%
|
Franchise and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
1,436,187
|
|
|
|
8.9
|
%
|
|
|
1,973,804
|
|
|
|
13.7
|
%
|
Fees
|
|
|
702,758
|
|
|
|
4.4
|
%
|
|
|
1,080,489
|
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise and other
|
|
|
2,138,945
|
|
|
|
13.3
|
%
|
|
|
3,054,293
|
|
|
|
21.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
16,061,079
|
|
|
|
100.0
|
%
|
|
$
|
14,431,266
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the three-months ended September 30, 2010
increased $1,629,813 or 11.3% to $16,061,079 as compared to the
same period of 2009. The $1,629,813 increase includes an
increase of $2,012,930 in revenue from the acquisition of three
franchisees and two independent chemical companies in 2010 and
18 franchises and an independent chemical company in 2009.
Excluding the effect of these acquisitions, revenue for the
three-months ended September 30, 2010 as compared to the
same period of 2009 decreased $383,117 or 2.7% primarily from
decreases of: (i) $657,669 or 15.5% in hygiene services and
(ii) $128,300 or 4.5% in paper; and (iii) 915,348 or
30.0% in product sales and fees earned from the companys
remaining franchises, which were partly offset by increases of
(x) $1,240,429 or 44.1% in chemical; and (y) $77,771
or 5.3% in rental and other.
The increase in chemical, rental, and other revenue is
attributable to the success of the companys corporate
account and distributor sales programs that were launched during
2008, as well as sales by the companys field employees.
The decrease in hygiene services and paper revenue was primarily
a result of the prolonged effect of the challenging economic
conditions we have experienced. These economic conditions
resulted in customer attrition, lower consumption levels of
products and services, and a reduction or elimination in
spending for hygiene-related products and services by customers
of the company.
The decrease of $915,348 in product sales and fees earned from
the companys franchisees in the three months ended
September 30, 2010 compared to the same period of 2009
includes a decline of $377,731 or 35.0% in fees and $537,617 or
27.2% in product sales, in part due to our acquiring three
franchises in 2010 and 18 franchisees in 2009. Excluding the
effect of the acquisitions, product sales and fees declined
$107,180 or 3.5% for the three months ended September 30,
2010 compared to the same period of 2009. This decline of
$107,180 includes increased product sales of $24,424 or 1.2%
offset by lower fees of $131,604 or 12.2%. This decline is
attributed to the prolonged effect of the challenging economic
conditions being experienced by our franchisees. These economic
conditions resulted in customer attrition, lower consumption
levels of products and services and a reduction or elimination
in spending for hygiene related products and services by
franchise customers.
39
Cost
of Sales
Cost of sales for the three-months ended September 30, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%(1)
|
|
|
2009
|
|
|
%(1)
|
|
|
Company-owned operations
|
|
$
|
4,772,207
|
|
|
|
34.2
|
%
|
|
$
|
3,994,485
|
|
|
|
35.1
|
%
|
Franchisee product sales
|
|
|
1,335,479
|
|
|
|
93.0
|
%
|
|
|
1,815,791
|
|
|
|
92.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
6,107,686
|
|
|
|
38.0
|
%
|
|
$
|
5,810,276
|
|
|
|
40.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cost as a percentage of the respective product line
revenue. |
Cost of sales consists primarily of paper, air freshener,
chemical and other consumable products sold to our customers,
franchisees and international licensees. Total cost of sales for
the three-months ended September 30, 2010 increased
$297,410 or 5.1% to $6,107,686 as compared to the same period of
2009. The $297,410 increase included an increase of $532,941
related to the acquisition of three franchises and two
independent chemical companies in 2010 and 18 franchises and an
independent chemical company in 2009. Excluding the effect of
the acquisitions, total cost of sales for the three-months ended
September 30, 2010 as compared to the same period of 2009
decreased $235,531 or 4.1%.
The cost of sales for company-owned operations for the
three-months ended September 30, 2010 increased $777,722 or
19.5% to $4,772,207 as compared to the same period of 2009. The
$777,722 increase included an increase of $532,941 related to
the acquisition of three franchises and two independent chemical
companies in 2010 and 18 franchises and an independent chemical
company in 2009. Cost of sales for company-owned operations,
excluding the impact of acquisitions, was 37.7% of related
revenue for the three-months ended September 30, 2010 as
compared to 37.3% for the same period of 2009. Excluding the
impact of the acquisitions, cost of sales for company-owned
operations increased $244,781 or 6.1% to $4,239,266 as compared
to the same period of 2009. The $244,781 increase consisted
primarily of $196,917 due to the current periods increased
product sales volume, $100,000 of allowances made for customer
volume incentives achieved in the current period and partly
offset by $52,136 of other changes in mix and improved product
costs.
The cost of sales to franchisees for the three-months ended
September 30, 2010 decreased $480,312 or 26.5% to
$1,335,479 as compared to the same period of 2009 in part due to
the acquisition of three franchises in 2010 and 18 franchises in
2009. Cost of sales to franchisees was 93.0% of franchisee
product revenue for the three-months ended September 30,
2010 as compared to 92.0% for the same period of 2009. Excluding
the effect of acquisitions, cost of goods sold increased $25,525
or 1.4% in the three months ended September 30, 2010
compared to the same period of 2009. The $25,525 increase was
primarily a result of the periods higher product sales to
its remaining franchisees.
Route
Expenses
Route expenses for the three-months ended September 30,
2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Route Expenses
|
|
$
|
3,511,409
|
|
|
|
25.2
|
%
|
|
$
|
3,174,906
|
|
|
|
27.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses consist primarily of the costs incurred by the
company for the delivery of products and providing services to
customers.
40
The details of route expenses for the three-months ended
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Compensation
|
|
$
|
2,451,906
|
|
|
|
69.8
|
%
|
|
$
|
2,265,908
|
|
|
|
71.4
|
%
|
Vehicle expenses
|
|
|
971,740
|
|
|
|
27.7
|
%
|
|
|
825,815
|
|
|
|
26.0
|
%
|
Other
|
|
|
87,763
|
|
|
|
2.5
|
%
|
|
|
83,183
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total route expenses
|
|
$
|
3,511,409
|
|
|
|
100.0
|
%
|
|
$
|
3,174,906
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses for the three-months ended September 30,
2010 increased $336,503 or 10.6% to $3,511,409 as compared to
the same period of 2009. The $336,503 increase included an
increase of $680,877 related to the acquisition of three
franchises and two independent chemical companies in 2010 and 18
franchises and an independent chemical company in 2009.
Excluding the impact of acquisitions, route expenses for the
three-months ended September 30, 2010 as compared to the
same period of 2009 decreased $344,374 or 10.8% to $2,830,532.
The decrease consisted of $282,915 in compensation, $50,100 in
vehicle expenses and $11,359 in other route-related expenses.
These decreases are a result of route consolidation and
optimization initiatives made in response to the prolonged
effect of the challenging economic conditions we have
experienced. These economic conditions resulted in customer
attrition, lower consumption levels of products and services and
a reduction or elimination in spending for hygiene-related
products and services by customers of the company. During the
three month period ended September 30, 2010, compared to
the same period in 2009, excluding the effect of acquisitions,
the average number of route technicians decreased by 15.9%.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses for the
three-months ended September 30, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Selling, general and administrative
|
|
$
|
7,521,046
|
|
|
|
46.8
|
%
|
|
$
|
6,368,549
|
|
|
|
44.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses consist primarily
of the costs incurred by the company for:
|
|
|
|
|
Branch office and field management support costs that are
related to field operations. These costs include compensation,
occupancy expense and other general and administrative expenses.
|
|
|
|
Sales expenses, which include marketing expenses and
compensation and commission for branch sales representatives and
corporate account executives.
|
|
|
|
Corporate office expenses that are related to general support
services, which include executive management compensation and
related costs, as well as department cost for information
technology, human resources, accounting, purchasing and other
support functions.
|
Selling, general and administrative expenses for the
three-months ended September 30, 2010 increased $1,152,497
or 18.1% to $7,521,046 as compared to the same period of 2009.
The $1,152,497 increase included an increase of $642,181 related
to the acquisition of three franchises and two independent
chemical companies in 2010 and 18 franchises and an independent
chemical company in 2009. Excluding the impact of acquisitions,
selling, general and administrative expenses for the
three-months ended September 30, 2010 as compared to the
same period of 2009 increased $510,316 or 8.0% to $6,878,865.
41
The details of selling, general and administrative expenses for
the three-months ended September 30, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Compensation
|
|
|
5,164,960
|
|
|
|
68.7
|
%
|
|
$
|
4,433,036
|
|
|
|
69.6
|
%
|
Occupancy
|
|
|
825,666
|
|
|
|
11.0
|
%
|
|
|
739,210
|
|
|
|
11.6
|
%
|
Other
|
|
|
1,530,420
|
|
|
|
20.3
|
%
|
|
|
1,196,303
|
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
7,521,046
|
|
|
|
100.0
|
%
|
|
$
|
6,368,549
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation for the three-months ended September 30, 2010
increased $731,924 or 16.5% to $5,164,960 as compared to the
same period of 2009. The $731,924 increase included an increase
of $494,318 related to the acquisition of three franchises and
two independent chemical companies in 2010 and 18 franchises and
an independent chemical company in 2009. Excluding the impact of
acquisitions, compensation expense for the three-months ended
September 30, 2010 as compared to the same period of 2009
increased $237,606 or 5.4% to $4,670,642. This increase was
primarily the result of an increase in costs and expenses
related to the company expansion of its corporate, field and
distribution sales organizations that began in 2009 and
continued into 2010 to accelerate the growth in the
companys chemical program.
Occupancy expenses for the three-months ended September 30,
2010 increased $86,456 or 11.7% to $825,666 as compared to the
same period of 2009. The $86,456 increase included an increase
of $81,698 related to the acquisition of three franchises and
two independent chemical companies in 2010 and 18 franchises and
an independent chemical company in 2009. Excluding the impact of
acquisitions, occupancy expenses for the three-months ended
September 30, 2010, as compared to the same period of 2009,
increased $4,758 or 0.6% to $743,968. This increase was
primarily a result of rent modifications on a number of leases
for company branch locations.
Other expenses for the three-months ended September 30,
2010 increased $334,117 or 27.9% to $1,530,420 as compared to
the same period of 2009. The $334,117 increase included an
increase of $66,165 related to the acquisition of three
franchises and two independent chemical companies in 2010 and 18
franchises and an independent chemical company in 2009.
Excluding the impact of acquisitions, other expenses for the
three-months ended September 30, 2010 as compared to the
same period of 2009, increased $267,952 or 22.4% to $1,464,255.
This increase was primarily a result of: $87,139 of office
expenses, $34,156 of additional courier charges related to the
increased number of locations, $21,181 of higher travel costs,
increased insurance of $38,120 and the recovery of previously
written off accounts in the amount of $21,484.
Merger-related
Costs
As discussed more fully in Notes to the Consolidated Financial
Statements Note 5 Subsequent Events, on November 2,
2010 the Company entered into a merger agreement under which all
of the outstanding common shares of the Company were to be
exchanged for 57,789,630 common shares of CoolBrands
International Inc. (CoolBrands), such that the
Company would become a wholly-owned subsidiary of CoolBrands. In
connection with this transaction, the Company incurred certain
directly-related legal, accounting and other professional
expenses. These non-recurring expenses totaled $1,425,855 and
were incurred entirely in the three month period ended
September 30, 2010.
Depreciation
and Amortization
Depreciation and amortization for the three-months ended
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Depreciation and amortization
|
|
$
|
1,272,266
|
|
|
|
7.9
|
%
|
|
$
|
1,180,348
|
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Depreciation and amortization consists of depreciation of
property and equipment and the amortization of intangible
assets. Depreciation and amortization for the three-months ended
September 30, 2010 increased $91,918 or 7.8% to $1,272,266
as compared to the same period of 2009. The increase of $91,918
reflects the higher level of capital spending in 2010 versus
2009 as well as higher amortization expense in connection with
the acquisition of 18 franchises and an independent chemical
company in 2009.
Other
Income (Expense)
Other income (expense) for the three-months ended
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Interest Income
|
|
$
|
13,196
|
|
|
|
0.1
|
%
|
|
$
|
41,171
|
|
|
|
0.3
|
%
|
Interest expense
|
|
|
(371,093
|
)
|
|
|
(2.3
|
)%
|
|
|
(257,640
|
)
|
|
|
(1.8
|
)%
|
Gain from bargain purchases
|
|
|
|
|
|
|
0.0
|
%
|
|
|
56,670
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
(357,897
|
)
|
|
|
(2.2
|
)%
|
|
$
|
(159,799
|
)
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income primarily relates to a note receivable from our
master licensee in the UK. The agreement with the master
licensee was executed in January 2009, but transitional issues
were not settled until the third quarter of 2009. Interest
income was determined and recorded at that time, resulting in
significantly greater interest income compared to the comparable
period of 2010. Through the nine months ended September 30,
2010, the total interest earned was $42,712, which is comparable
to the interest earned in the corresponding period in 2009.
Interest expense represents interest on borrowings under the
companys credit facilities, notes incurred in connection
with acquisitions, advances from shareholders and the purchase
of equipment and software. Interest expenses for the
three-months ended September 30, 2010 increased $113,453 or
44.0% to $371,093 as compared to the same period of 2009. The
$113,453 increase is primarily a result of a $6,973,553
year-to-year increase in notes and shareholder advances.
The gain from bargain purchases recognized in 2009 was related
to our acquisition of one franchisee where the fair value of the
assets acquired exceeded the purchase price.
43
SWISHER
HYGIENE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2010 AS COMPARED TO THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine-Months Ended September 30,
|
|
|
|
2010
|
|
|
%(1)
|
|
|
2009
|
|
|
%(1)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and services
|
|
$
|
39,489,707
|
|
|
|
85.9
|
%
|
|
$
|
31,598,952
|
|
|
|
75.8
|
%
|
Franchise and other
|
|
|
6,463,863
|
|
|
|
14.1
|
%
|
|
|
10,074,268
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
45,953,570
|
|
|
|
100.0
|
%
|
|
|
41,673,220
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
16,870,196
|
|
|
|
36.7
|
%
|
|
|
16,293,801
|
|
|
|
39.1
|
%
|
Route expenses
|
|
|
9,859,640
|
|
|
|
25.0
|
%
|
|
|
9,167,683
|
|
|
|
29.0
|
%
|
Selling, general and administrative
|
|
|
20,895,398
|
|
|
|
45.5
|
%
|
|
|
17,065,873
|
|
|
|
41.0
|
%
|
Merger-related expenses
|
|
|
1,425,855
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,399,004
|
|
|
|
7.4
|
%
|
|
|
3,695,980
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
52,450,093
|
|
|
|
114.1
|
%
|
|
|
46,223,337
|
|
|
|
110.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,496,523
|
)
|
|
|
(14.1
|
)%
|
|
|
(4,550,117
|
)
|
|
|
(10.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
49,877
|
|
|
|
0.1
|
%
|
|
|
41,367
|
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(1,053,513
|
)
|
|
|
(2.3
|
)%
|
|
|
(706,460
|
)
|
|
|
(1.7
|
)%
|
Gain from bargain purchases
|
|
|
|
|
|
|
|
|
|
|
56,670
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(1,003,636
|
)
|
|
|
(2.2
|
)%
|
|
|
(608,423
|
)
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(7,500,159
|
)
|
|
|
(16.3
|
)%
|
|
|
(5,158,540
|
)
|
|
|
(12.4
|
)%
|
Net (Income) Attributable to Noncontrolling Equity
Interest
|
|
|
(7,264
|
)
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Swisher Hygiene Inc.
|
|
$
|
(7,507,423
|
)
|
|
|
(16.3
|
)%
|
|
$
|
(5,158,540
|
)
|
|
|
(12.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
Company-owned locations
|
|
|
65
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Franchises
|
|
|
12
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
International Master Licenses
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated as a percentage of total revenue, except for Route
Expenses which is calculated as a percentage of Product and
services revenue, as route expenses relate solely to Product and
services revenue from operations. |
44
Revenue
Total revenue and the revenue derived from each revenue type for
the nine-months ended September 30, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene services
|
|
$
|
13,142,945
|
|
|
|
28.6
|
%
|
|
$
|
11,905,145
|
|
|
|
28.6
|
%
|
Chemical
|
|
|
12,705,752
|
|
|
|
27.6
|
%
|
|
|
7,118,145
|
|
|
|
17.1
|
%
|
Paper
|
|
|
9,150,729
|
|
|
|
19.9
|
%
|
|
|
8,210,636
|
|
|
|
19.7
|
%
|
Rental and other
|
|
|
4,490,281
|
|
|
|
9.8
|
%
|
|
|
4,365,026
|
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total products and service
|
|
|
39,489,707
|
|
|
|
85.9
|
%
|
|
|
31,598,952
|
|
|
|
75.8
|
%
|
Franchise and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
4,238,530
|
|
|
|
9.2
|
%
|
|
|
6,528,425
|
|
|
|
15.7
|
%
|
Fees
|
|
|
2,225,333
|
|
|
|
4.8
|
%
|
|
|
3,545,843
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise and other
|
|
|
6,463,863
|
|
|
|
14.1
|
%
|
|
|
10,074,268
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
45,953,570
|
|
|
|
100.0
|
%
|
|
$
|
41,673,220
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the nine-months ended September 30, 2010
increased $4,280,350 or 10.3% to $45,953,570 as compared to the
same period of 2009. The $4,280,350 increase includes an
increase of $7,306,842 in revenue from the acquisitions of three
franchises and three independent chemical companies in 2010 and
18 franchises and an independent chemical company in 2009.
Excluding the impact of acquisitions, product and service
revenue increased $583,913 which was offset by a $3,610,405 loss
in franchise products sales and fees earned in 2009 in part from
the loss of sales to the acquired franchises. Excluding the
effect of these acquisitions, revenue for the nine-months ended
September 30, 2010 as compared to the same period of 2009
decreased $3,026,492 or 7.3% primarily from decreases of:
(i) $2,439,523 or 20.5% in hygiene services;
(ii) $694,537 or 8.5% in paper; (iii) $323,999 or 7.4%
in rental and other; and (iv) $3,610,405 or 35.8% in
product sales and fees earned from the companys remaining
franchises. These decreases were partially offset by a
$4,041,972 or 56.8% increase in chemical revenue.
The increase in chemical revenue is attributable to the success
of the companys corporate account and distributor sales
programs that were launched during 2008, as well as sales by the
companys field employees. The decrease in hygiene
services, paper and rental and other revenue was primarily a
result of the prolonged effect of the challenging economic
conditions we have experienced. These economic conditions
resulted in customer attrition, lower consumption levels of
products and services, and a reduction or elimination in
spending for hygiene-related products and services by customers
of the company.
The decrease of $3,610,405 or 35.8% in product sales and fees
earned from the companys franchisees in the nine months
ended September 30, 2010 compared to the same period of
2009 includes a decline of $1,320,510 or 37.2% in fees and
$2,289,895 or 35.1% in product sales, in part due to our
acquiring three franchises in 2010 and 18 franchisees in 2009 .
Excluding the effect of the acquisitions, product sales and fees
declined $456,799 or 4.5% for the nine months ended
September 30, 2010 compared to the same period of 2009.
This decline of $456,799 includes decreased product sales of
$138,170 or 2.1% and lower fees of 318,629 or 9.0%. This decline
is attributed to the prolonged effect of the challenging
economic conditions being experienced by our franchisees. These
economic conditions resulted in customer attrition, lower
consumption levels of products and services and a reduction or
elimination in spending for hygiene related products and
services by franchise customers.
45
Cost
of Sales
Cost of sales for the nine-months ended September 30, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%(1)
|
|
|
2009
|
|
|
%(1)
|
|
|
Company-owned operations
|
|
$
|
12,963,597
|
|
|
|
32.8
|
%
|
|
$
|
10,318,703
|
|
|
|
32.7
|
%
|
Franchisee product sales
|
|
|
3,906,599
|
|
|
|
92.2
|
%
|
|
|
5,975,098
|
|
|
|
91.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
16,870,196
|
|
|
|
36.7
|
%
|
|
$
|
16,293,801
|
|
|
|
39.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cost as a percentage of the respective product line
revenue. |
Cost of sales consists primarily of paper, air freshener,
chemical and other consumable products sold to our customers,
franchisees and international licensees. Total cost of sales for
the nine-months ended September 30, 2010 increased $576,395
or 3.5% to $16,870,196 as compared to the same period of 2009.
The $576,395 increase included an increase of $1,757,955 related
to the acquisition of three franchises and three independent
chemical companies in 2010 and 18 franchisees and an independent
chemical company in 2009. Excluding the effect of these
acquisitions, total cost of sales for the nine-months ended
September 30, 2010 as compared to the same period of 2009
decreased $1,181,560 or 7.3% as compared to the same period of
2009.
The cost of sales for company-owned operations for the
nine-months ended September 30, 2010 increased $2,644,894
or 25.6% to $12,963,597 as compared to the same period of 2009.
The $2,644,894 increase included an increase of $1,757,955
related to the acquisition of three franchises and three
independent chemical companies in 2010 and 18 franchises and an
independent chemical company in 2009. Cost of sales for
company-owned operations, excluding the impact of acquisitions,
was 34.8% of related revenue for the nine-months ended
September 30, 2010 as compared to 32.7% for the same period
of 2009. Excluding the impact of the acquisitions, cost of sales
for company-owned operations increased $886,939 or 8.6% to
$11,205,642 as compared to the same period of 2009. The $886,939
increase consisted primarily of $795,279 in sales mix change
from lower cost hygiene services to higher cost chemical product
sales, $193,859 due to the current periods higher product sales
volume, and partly offset by $102,199 improved product cost.
The cost of sales to franchisees for the nine-months ended
September 30, 2010 decreased $2,068,499 or 34.6% to
$3,906,599 as compared to the same period of 2009 in part due to
the acquisition of three franchises in 2010 and 18 franchises in
2009. Cost of sales to franchisees was 92.2% of franchisee
product revenue for the nine-months ended September 30,
2010 as compared to 91.5% for the same period of 2009. Excluding
the effect of acquisitions, cost of goods sold decreased
$131,946 or 2.2% in the nine months ended September 30,
2010 compared to the same period of 2009. The $131,946 decrease
was primarily a result of the periods lower product sales
to its remaining franchisees.
Route
Expenses
Route expenses for the nine-months ended September 30, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Route Expenses
|
|
$
|
9,859,640
|
|
|
|
25.0
|
%
|
|
$
|
9,167,683
|
|
|
|
29.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses consist primarily of the costs incurred by the
company for the delivery of products and providing services to
customers.
46
The details of route expenses for the nine-months ended
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Compensation
|
|
$
|
6,979,410
|
|
|
|
70.8
|
%
|
|
$
|
6,625,596
|
|
|
|
72.3
|
%
|
Vehicle expenses
|
|
|
2,648,847
|
|
|
|
26.9
|
%
|
|
|
2,315,643
|
|
|
|
25.3
|
%
|
Other
|
|
|
231,383
|
|
|
|
2.3
|
%
|
|
|
226,444
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total route expenses
|
|
$
|
9,859,640
|
|
|
|
100.0
|
%
|
|
$
|
9,167,683
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses for the nine-months ended September 30, 2010
increased $691,957 or 7.5% to $9,859,640 as compared to the same
period of 2009. The $691,957 increase included an increase of
$2,301,041 related to the acquisition of three franchises and
three independent chemical companies in 2010 and 18 franchises
and an independent chemical company in 2009. Excluding the
impact of acquisitions, route expenses for the nine-months ended
September 30, 2010 as compared to the same period of 2009
decreased $1,609,084 or 17.6% to $7,558,599. The decrease
consisted primarily of $1,322,585 in compensation, $239,070 in
vehicle expenses and $47,429 in other route expenses. These
decreases are a result of route consolidation and optimization
initiatives made in response to the prolonged effect of the
challenging economic conditions we have experienced. These
economic conditions resulted in customer attrition, lower
consumption levels of products and services and a reduction or
elimination in spending for hygiene-related products and
services by customers of the company. During the nine month
period ended September 30, 2010 compared to the same period
in 2009, excluding the effect of acquisitions, the average
number of route technicians decreased 19.6%.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses for the nine-months
ended September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Selling, general and administrative
|
|
$
|
20,895,398
|
|
|
|
45.5
|
%
|
|
$
|
17,065,873
|
|
|
|
41.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses consist primarily
of the costs incurred by the company for:
|
|
|
|
|
Branch office and field management support costs that are
related to field operations. These costs include compensation,
occupancy expense and other general and administrative expenses.
|
|
|
|
Sales expenses, which include marketing expenses and
compensation and commission for branch sales representatives and
corporate account executives.
|
|
|
|
Corporate office expenses that are related to general support
services, which include executive management compensation and
related costs, as well as department cost for information
technology, human resources, accounting, purchasing and other
support functions.
|
Selling, general and administrative expenses for the nine-months
ended September 30, 2010 increased $3,829,525 or 22.4% to
$20,895,398 as compared to the same period of 2009. The
$3,829,525 increase included an increase of $2,199,652 related
to the acquisition of three franchises and three independent
chemical companies in 2010 and 18 franchises and an independent
chemical company in 2009. Excluding the impact of acquisitions,
selling, general and administrative expenses for the nine-months
ended September 30, 2010 as compared to the same period of
2009 increased $1,629,873 or 9.6% to $18,695,746.
47
The details of selling, general and administrative expenses for
the nine-months ended September 30, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Compensation
|
|
$
|
14,625,279
|
|
|
|
70.0
|
%
|
|
$
|
11,617,872
|
|
|
|
68.1
|
%
|
Occupancy
|
|
|
2,435,527
|
|
|
|
11.7
|
%
|
|
|
2,219,742
|
|
|
|
13.0
|
%
|
Other
|
|
|
3,834,592
|
|
|
|
18.4
|
%
|
|
|
3,228,259
|
|
|
|
18.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
20,895,398
|
|
|
|
100.0
|
%
|
|
$
|
17,065,873
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation for the nine-months ended September 30, 2010
increased $3,007,407 or 25.9% to $14,625,279 as compared to the
same period of 2009. The $3,007,407 increase included an
increase of $1,704,337 related to the acquisition of three
franchises and three independent chemical companies in 2010 and
18 franchises and an independent chemical company in 2009.
Excluding the impact of acquisitions, compensation expenses for
the nine-months ended September 30, 2010 as compared to the
same period of 2009 increased $1,303,070 or 11.2% to
$12,920,942. This increase was primarily the result of an
increase in costs and expenses related to the company expansion
of its corporate, field and distribution sales organizations
during the first nine months of 2010 to accelerate the growth in
the companys chemical program.
Occupancy expenses for the nine-months ended September 30,
2010 increased $215,785 or 9.7% to $2,435,527 as compared to the
same period of 2009. The $215,785 increase included an increase
of $278,462 related to the acquisition of three franchises and
three independent chemical companies in 2010 and 18 franchises
and an independent chemical company in 2009. Excluding the
impact of acquisitions, occupancy expenses for the nine-months
ended September 30, 2010, as compared to the same period of
2009, decreased $62,677 or 2.8% to $2,157,065. This decrease was
primarily a result of rent modifications on a number of leases
for company branch locations.
Other expenses for the nine-months ended September 30, 2010
increased $606,333 or 18.8% to $3,834,591 as compared to the
same period of 2009. The $606,333 increase included an increase
of $216,853 related to the acquisition of three franchises and
three independent chemical companies in 2010 and 18 franchises
and an independent chemical company in 2009. Excluding the
impact of acquisitions, other expenses for the nine-months ended
September 30, 2010 as compared to the same period of 2009,
increased $389,480 or 12.1% to $3,617,739. This increase was
primarily a result of the recovery of non-recurring, previously
written off accounts of $314,489 in the 2009 period and an
increase in travel expenses related to the expansion of the
companys corporate and distribution locations.
Merger-related
Costs
As discussed more fully in Notes to the Consolidated Financial
Statements Note 5 Subsequent Events, on November 2,
2010 the Company entered into a merger agreement under which all
of the outstanding common shares of the Company were to be
exchanged for 57,789,630 common shares of CoolBrands, such that
the Company would become a wholly-owned subsidiary of
CoolBrands. In connection with this transaction, the Company
incurred certain directly-related legal, accounting and other
professional expenses. These non-recurring expenses totaled
$1,425,855 and were incurred entirely in the three month period
ended September 30, 2010.
Depreciation
and Amortization
Depreciation and amortization for the nine-months ended
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
Depreciation and amortization
|
|
$
|
3,399,004
|
|
|
|
7.4
|
%
|
|
$
|
3,695,980
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization consists of depreciation of
property and equipment and the amortization of intangible
assets. Depreciation and amortization for the nine-months ended
September 30, 2010 decreased
48
$296,976 or 8.0% to $3,399,004 as compared to the same period of
2009. The $296,976 decrease is primarily as a result of a
decline in amortization of certain intangible assets including
the non-compete agreement of a former shareholder of the company
which fully amortized in October 2009 as well as decreased
depreciation of in-service equipment as installed products are
now fully depreciated. These declines were partially offset by
increased depreciation on warewashing and chemical dispensing
equipment as the company continues to successfully execute its
chemical product sales initiatives.
Other
Income (Expense)
Other income (expense) for the nine-months ended
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
%
|
|
|
2009
|
|
|
%
|
|
|
|
|
|
Interest Income
|
|
$
|
49,877
|
|
|
|
|
|
|
$
|
41,367
|
|
|
|
0.1
|
%
|
|
|
|
|
Interest expense
|
|
|
(1,053,513
|
)
|
|
|
(2.3
|
)%
|
|
|
(706,460
|
)
|
|
|
(1.7
|
)%
|
|
|
|
|
Gain from bargain purchases
|
|
|
|
|
|
|
|
|
|
|
56,670
|
|
|
|
0.1
|
%
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
(1,003,636
|
)
|
|
|
(2.3
|
)%
|
|
$
|
(608,423
|
)
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income primarily relates to a note receivable from our
master licensee in the UK. Interest for the nine months ended
September 30, 2010 and 2009 was $42,712 and $41,044,
respectively.
Interest expense represents interest on borrowings under the
companys credit facilities, notes incurred in connection
with acquisitions, advances from shareholders and the purchase
of equipment and software. Interest expenses for the nine-months
ended September 30, 2010 increased $347,053 or 49.1% to
$1,053,513 as compared to the same period of 2009. The $347,053
increase is primarily a result of a $6,973,553 year-to-year
increase in debt and shareholder advances.
The gain from bargain purchases recognized in 2009 was related
to our acquisition of one franchisee where the fair value of the
assets acquired exceeded the purchase price.
49
SWISHER
HYGIENE INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2009 AS COMPARED
TO THE YEAR ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%(1)
|
|
|
2008
|
|
|
%(1)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service
|
|
$
|
43,890,697
|
|
|
|
77.3
|
%
|
|
$
|
45,831,483
|
|
|
|
71.5
|
%
|
Franchise and other
|
|
|
12,923,327
|
|
|
|
22.7
|
%
|
|
|
18,277,408
|
|
|
|
28.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
56,814,024
|
|
|
|
100.0
|
%
|
|
|
64,108,891
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
22,304,515
|
|
|
|
39.3
|
%
|
|
|
25,071,410
|
|
|
|
39.1
|
%
|
Route expenses
|
|
|
12,519,891
|
|
|
|
28.5
|
%
|
|
|
14,201,243
|
|
|
|
31.0
|
%
|
Selling, general and administrative
|
|
|
24,060,048
|
|
|
|
42.3
|
%
|
|
|
30,112,150
|
|
|
|
47.0
|
%
|
Depreciation and amortization
|
|
|
4,744,052
|
|
|
|
8.4
|
%
|
|
|
5,206,632
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
63,628,506
|
|
|
|
112.0
|
%
|
|
|
74,591,435
|
|
|
|
116.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,814,482
|
)
|
|
|
(12.0
|
)%
|
|
|
(10,482,544
|
)
|
|
|
(16.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
54,797
|
|
|
|
0.1
|
%
|
|
|
10,337
|
|
|
|
0.0
|
%
|
Interest expense
|
|
|
(1,063,411
|
)
|
|
|
(1.9
|
)%
|
|
|
(1,292,664
|
)
|
|
|
(2.0
|
)%
|
Forgiveness of debt
|
|
|
500,000
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Gain from bargain purchase
|
|
|
94,107
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Impairment losses
|
|
|
(30,000
|
)
|
|
|
(0.1
|
)%
|
|
|
(223,000
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(444,507
|
)
|
|
|
(0.8
|
)%
|
|
|
(1,505,327
|
)
|
|
|
(2.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(7,258,989
|
)
|
|
|
(12.8
|
)%
|
|
$
|
(11,987,871
|
)
|
|
|
(18.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(.13
|
)
|
|
|
|
|
|
$
|
(.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
Company-owned locations
|
|
|
60
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
Franchises
|
|
|
15
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
International Master Licenses
|
|
|
10
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated as a percentage of total revenue, except for Route
Expenses which is calculated as a percentage of Product and
services revenue, as route expenses relate solely to Product and
services revenue from operations. |
50
Revenue
Total revenue and the revenue derived from each revenue type for
the years ended December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene services
|
|
$
|
16,573,821
|
|
|
|
29.2
|
%
|
|
$
|
19,895,990
|
|
|
|
31.0
|
%
|
Chemical
|
|
|
10,319,434
|
|
|
|
18.2
|
%
|
|
|
6,914,652
|
|
|
|
10.8
|
%
|
Paper
|
|
|
11,549,037
|
|
|
|
20.3
|
%
|
|
|
12,760,759
|
|
|
|
19.9
|
%
|
Rental and other
|
|
|
5,448,405
|
|
|
|
9.6
|
%
|
|
|
6,260,082
|
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product and service
|
|
|
43,890,697
|
|
|
|
77.3
|
%
|
|
|
45,831,483
|
|
|
|
71.5
|
%
|
Franchise and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
8,732,038
|
|
|
|
15.4
|
%
|
|
|
11,904,308
|
|
|
|
18.6
|
%
|
Fees
|
|
|
4,191,289
|
|
|
|
7.3
|
%
|
|
|
6,373,100
|
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise and other
|
|
|
12,923,327
|
|
|
|
22.7
|
%
|
|
|
18,277,408
|
|
|
|
28.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
56,814,024
|
|
|
|
100.0
|
%
|
|
$
|
64,108,891
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the year ended December 31, 2009
decreased $7,294,867 or 11.4% to $56,814,024 as compared to the
same period of 2008. The $7,294,867 decrease includes an
increase of $4,321,596 in revenue from the acquisition of 18
franchises and an independent chemical company in 2009 and two
franchises in 2008, which was offset by a $2,294,328 loss in
franchise products sales and fees earned in 2008 from the
acquired franchises. Excluding the effect of these acquisitions,
revenue for the years ended December 31, 2009 as compared
to the same period of 2008 decreased $9,322,135 or 14.5%
primarily from decreases of: (i) $5,855,055 or 29.4% in
hygiene services; (ii) $2,168,996 or 17.0% in paper;
(iii) $1,130,467 or 18.1% in rental; and
(iv) $3,059,753 or 16.7% in product sales and fees earned
from the companys remaining franchises. These decreases
were partially offset by a $2,892,136 or 41.8% increase in
chemical revenue.
The increase in chemical revenue is attributable to the success
of the companys corporate account and distributor sales
programs that were launched during 2008, as well as sales by the
companys field employees. The decrease in hygiene, paper
and rental and other revenue was primarily a result of the
prolonged effect of the challenging economic conditions we have
experienced. These economic conditions resulted in customer
attrition, lower consumption levels of products and services and
a reduction or elimination in spending for hygiene-related
products and services by customers of the company.
The decrease in product sales and fees from the companys
remaining franchisees was a result of: (i) lower sales in
our U.K. operation of $1,708,738, due to the sale of that
operation in January 2009; (ii) the impact of the
companys acquisition of certain franchises of $2,294,328;
and (iii) a $1,351,016 decline in product sales and fees
resulting from a 31.4% decrease in customer revenue experienced
by our franchises. This decline is attributed to the prolonged
effect of the challenging economic conditions being experienced
by our franchisees. These economic conditions resulted in
customer attrition, lower consumption levels of products and
services and a reduction or elimination in spending for hygiene
related products and services by franchisee customers.
Cost
of Sales
Cost of sales for the years ended December 31, 2009 and
2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%(1)
|
|
|
2008
|
|
|
%(1)
|
|
|
Product and services
|
|
$
|
14,385,596
|
|
|
|
32.8
|
%
|
|
|
14,329,153
|
|
|
|
31.3
|
%
|
Franchise and other
|
|
|
7,918,919
|
|
|
|
90.7
|
%
|
|
|
10,742,257
|
|
|
|
90.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
22,304,515
|
|
|
|
39.3
|
%
|
|
$
|
25,071,410
|
|
|
|
39.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents costs as a percentage of the respective product line
revenue. |
51
Cost of sales consists primarily of paper, air freshener,
chemicals and other consumable products sold to our customers,
franchisees and international licensees. Total cost of sales for
the year ended December 31, 2009 decreased $2,766,895 or
11.0% to $22,304,515 as compared to the same period of 2008. The
$2,766,895 decrease included an increase of $806,117 related to
the acquisition of 18 franchises and an independent chemical
company in 2009 and two franchises in 2008. Excluding the impact
of acquisitions, total cost of sales for the years ended
December 31, 2009 as compared to the same period of 2008
decreased $3,573,012 or 14.3%.
The cost of sales for company-owned operations for the year
ended December 31, 2009 increased $56,443 or 0.4% to
$14,385,596 as compared to the same period of 2008. The $56,443
increase included an increase of $806,117 in cost of sales
related to the acquisition of 18 franchises and an independent
chemical company in 2009 and two franchises in 2008. Cost of
sales for company-owned operations, excluding the impact of
acquisitions, was 34.2% of related revenue for the year ended
December 31, 2009 as compared to 31.3% for the same period
of 2008. Excluding the impact of the acquisitions, cost of sales
for company-owned operations decreased $749,674 or 5.2% to
$13,579,479 as compared to the same period of 2009. The $749,674
decrease consisted primarily of a $1,655,760 decrease due to
lower revenue volume in 2009 and $911,045 in cost reductions
resulting from purchasing and operational efficiencies in 2009.
These decreases were offset by an increase of $1,283,317 in
sales mix shift change from lower cost hygiene services to
higher cost chemical product sales and $533,814 higher freight
expenses.
Cost of sales to franchisees for the year ended
December 31, 2009 decreased $2,823,338 or 26.3% to
$7,918,919 as compared to the same period of 2008. The
$2,823,338 decrease included a decrease of $1,306,409 related to
the acquisition of 18 franchises and an independent chemical
company in 2009 and two franchises in 2008. Cost of sales to
franchisees, excluding the impact of acquisitions, was 90.6% of
franchisee product revenue for the year ended December 31,
2009 as compared to 88.5% for the same period of 2008. Excluding
the impact of acquisitions, cost of sales to franchisees for the
year ended December 31, 2009, decreased $1,516,929 or 14.1%
as compared to the same period of 2008. The $1,516,929 decrease
was primarily a result of (i) a decline in products
purchased by franchisees due to a 31.4% decrease in customer
revenue experienced by our franchisees; (ii) and the effect
of a 50% reduction in the
mark-up on
certain products sold to franchisees by the company; and
(iii) the reduction in revenue related to our U.K.
operation, which was sold in January 2009.
Route
Expenses
Route expenses for the years ended December 31, 2009 and
2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
Total route expenses
|
|
$
|
12,519,891
|
|
|
|
28.5
|
%
|
|
$
|
14,201,243
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses consist primarily of the costs incurred by the
company for the delivery of products and providing services to
customers.
The details of route expenses for the years ended
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
Compensation
|
|
$
|
9,085,209
|
|
|
|
72.6
|
%
|
|
$
|
9,990,412
|
|
|
|
70.4
|
%
|
Vehicle expenses
|
|
|
3,144,603
|
|
|
|
25.1
|
%
|
|
|
3,810,394
|
|
|
|
26.8
|
%
|
Other
|
|
|
290,079
|
|
|
|
2.3
|
%
|
|
|
400,437
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total route expenses
|
|
$
|
12,519,891
|
|
|
|
100.0
|
%
|
|
$
|
14,201,243
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses for the year ended December 31, 2009
decreased $1,681,352 or 11.8% to $12,519,891 as compared to the
same period of 2008. The $1,681,352 decrease included an
increase of $1,064,676 related to the acquisition of 18
franchises and an independent chemical company in 2009 and two
franchises in 2008. Excluding the impact of acquisitions, route
expenses for the years ended December 31, 2009 as compared
to the same period of 2008 decreased $2,746,028 or 19.3% to
$11,455,215. The decrease consisted primarily of
52
$1,838,795 in compensation and $784,045 in vehicle expenses.
These cost reductions were a result of route consolidation and
optimization initiatives made in response to the prolonged
effect of the challenging economic conditions we have
experienced. These economic conditions resulted in customer
attrition, lower consumption levels of products and services and
a reduction or elimination in spending for hygiene-related
products and services by customers of the company.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses for the years ended
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
Selling, general and administrative
|
|
$
|
24,060,048
|
|
|
|
42.3
|
%
|
|
$
|
30,112,150
|
|
|
|
47.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses consist primarily
of the costs incurred by the company for:
|
|
|
|
|
Branch office and field management support costs that are
related to field operations. These costs include compensation,
occupancy expense and other general and administrative expenses.
|
|
|
|
Sales expenses, which includes marketing expenses and
compensation and commission for branch sales representatives and
corporate account executives.
|
|
|
|
Corporate office expenses that are related to general support
services, which includes executive management compensation and
related costs, as well as department cost for information
technology, human resources, accounting, purchasing and other
support functions.
|
Selling, general and administrative expenses for the years ended
December 31, 2009 decreased $6,052,102, or 20.1%, to
$24,060,048 as compared to the same period of 2008. The decrease
of $6,052,102 included an increase of $1,069,087 in expenses
related to the acquisition of 18 franchises and an independent
chemical company in 2009 and two franchises in 2008. Excluding
the impact of acquisitions, selling, general and administrative
expenses for the years ended December 31, 2009 as compared
to the same period of 2008 decreased $7,121,189, or 23.6%.
The details of selling, general and administrative expenses for
the years ended December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
Compensation
|
|
$
|
16,975,556
|
|
|
|
70.6
|
%
|
|
$
|
20,356,810
|
|
|
|
67.6
|
%
|
Occupancy
|
|
|
3,124,466
|
|
|
|
13.0
|
%
|
|
|
2,934,305
|
|
|
|
9.7
|
%
|
Other
|
|
|
3,960,026
|
|
|
|
16.4
|
%
|
|
|
6,821,035
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
24,060,048
|
|
|
|
100.0
|
%
|
|
$
|
30,112,150
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation for the year ended December 31, 2009 decreased
$3,381,254, or 16.6%, to $16,975,556, as compared to the same
period of 2008. The $3,381,254 decrease included an increase of
$911,335 related to the acquisition of 18 franchises and an
independent chemical company in 2009 and two franchises in 2008.
Excluding the impact of acquisitions, compensation expenses for
the year ended December 31, 2009 as compared to the same
period of 2008 decreased $4,292,589, or 21.1% to $16,064,221.
This decrease was primarily a result of reductions in
compensation of: (i) $2,955,479 in field operating and
sales personal in response to changing economic conditions;
(ii) $362,212 of corporate staff resulting from the
discontinuation of providing certain business services to
franchisees; and (iii) $974,898 related to our U.K.
operation, which was sold in January 2009.
Occupancy expenses for the year ended December 31, 2009
increased $190,161, or 6.5%, to $3,124,466, as compared to the
same period of 2008. The increase of $190,161 included an
increase of $138,589 related to the acquisition of 18 franchises
and an independent chemical company in 2009 and two franchises
in 2008. Excluding the impact of acquisitions, occupancy
expenses for the year ended December 31, 2009 as compared
to the same period of 2008 increased $51,572, or 1.8% to
$2,985,877.
53
Other expenses for the year ended December 31, 2009
decreased $2,861,009, or 41.9%, to $3,960,026 as compared to the
same period of 2008. The $2,861,009 decrease included an
increase of $19,163 related to the acquisition of 18 franchises
and an independent chemical company in 2009 and two franchises
in 2008. Excluding the impact of the acquisitions, other
expenses for the years ended December 31, 2009 as compared
to the same period of 2008 decreased $2,880,172, or 42.2% to
$3,940,863. This decrease was a result of: (i) $1,065,707
in marketing and office support costs resulting from the
elimination of field operating and sales personnel;
(ii) $257,428 in printing and other costs associated with
the discontinuation of providing certain business services to
franchisees; (iii) $537,490 of costs related to our U.K.
operation, which was sold in January 2009; (iv) $392,609 in
costs related to the implementation of the companys
technology platform; and (v) $626,938 in bad debt expense.
Depreciation
and Amortization
Depreciation and amortization for the years ended
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
Depreciation and amortization
|
|
$
|
4,744,052
|
|
|
|
8.4
|
%
|
|
$
|
5,206,632
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization consists of depreciation of
property and equipment and the amortization of intangible
assets. Depreciation and amortization for the year ended
December 31, 2009 decreased $462,580 or 8.9% to $4,744,052
as compared to the same period of 2008. The $462,580 decrease is
primarily a result of: (i) lower depreciation of $876,580
as property and equipment purchased in earlier years which has
now fully depreciated and was partly offset by
(ii) increased depreciation on warewashing and chemical
dispensing equipment as the company continued expanding its
chemical sales programs and (iii) $61,065 of increased
amortization of intangibles related to certain new business
acquisitions.
Other
Income (Expense)
Other income (expense) for the years ended December 31,
2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
Interest Income
|
|
$
|
54,797
|
|
|
|
0.1
|
%
|
|
$
|
10,337
|
|
|
|
|
|
Interest expense
|
|
|
(1,063,411
|
)
|
|
|
(1.9
|
)%
|
|
|
(1,292,664
|
)
|
|
|
(2.0
|
)%
|
Forgiveness of debt
|
|
|
500,000
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
|
94,107
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
Impairment losses
|
|
|
(30,000
|
)
|
|
|
(0.1
|
)%
|
|
|
(223,000
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
(444,507
|
)
|
|
|
(0.8
|
)%
|
|
$
|
(1,505,327
|
)
|
|
|
(2.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense represents interest on borrowings under the
companys credit facility, notes incurred in connection
with acquisitions and for the purchases of equipment and
software. Interest expenses for the year ended December 31,
2009 decreased $229,253 or 17.7% to $1,063,411 as compared to
the same period of 2008. The $229,253 decrease is primarily a
result of lower interest rates on bank lines of credit offset by
increased interest expense on notes incurred in connection with
the 2009 acquisitions.
From 2006 until 2008, the company had agreed to pay a company
owned by a shareholder a fee for services provided, including
product development, marketing and branding strategy, and
management advisory assistance totaling $500,000. In 2009, the
related company waived it rights to these fees and accordingly,
the accrued balance of $500,000, which was outstanding as of
December 31, 2008, has been recorded as forgiveness of
debt. The company considered the accounting alternatives for the
treatment of this transaction and concluded that as the
transaction represented the forgiveness of a previously expensed
liability it was most appropriately reflected in other income.
The gain on bargain purchase recognized in 2009 was related to
the acquisition of franchisees where the fair value of the
assets acquired exceeded purchase price.
The company tests goodwill and other intangible assets for
impairment on an annual basis or when circumstances change that
would more likely than not reduce the fair value of the goodwill
and intangible assets to amounts that are less than their
carrying amounts. For the years ended December 31, 2009 and
2008, impairment losses were recognized on goodwill and other
intangible assets totaling $30,000 and $223,000, respectively.
54
SWISHER
HYGIENE INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2008 AS COMPARED
TO THE YEAR ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%(1)
|
|
|
2007
|
|
|
%(1)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service
|
|
$
|
45,831,483
|
|
|
|
71.5
|
%
|
|
$
|
45,026,463
|
|
|
|
69.1
|
%
|
Franchise and other
|
|
|
18,277,408
|
|
|
|
28.5
|
%
|
|
|
20,163,791
|
|
|
|
30.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
64,108,891
|
|
|
|
100.0
|
%
|
|
|
65,190,254
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
25,071,410
|
|
|
|
39.1
|
%
|
|
|
25,859,043
|
|
|
|
39.7
|
%
|
Route expenses
|
|
|
14,201,243
|
|
|
|
31.0
|
%
|
|
|
15,073,727
|
|
|
|
33.5
|
%
|
Selling, general and administrative
|
|
|
30,112,150
|
|
|
|
47.0
|
%
|
|
|
29,115,436
|
|
|
|
44.7
|
%
|
Depreciation and amortization
|
|
|
5,206,632
|
|
|
|
8.1
|
%
|
|
|
4,413,566
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
74,591,435
|
|
|
|
116.4
|
%
|
|
|
74,461,772
|
|
|
|
114.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(10,482,544
|
)
|
|
|
(16.4
|
)%
|
|
|
(9,271,518
|
)
|
|
|
(14.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
10,337
|
|
|
|
0.0
|
%
|
|
|
56,013
|
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(1,292,664
|
)
|
|
|
(2.0
|
)%
|
|
|
(1,256,512
|
)
|
|
|
(1.9
|
)%
|
Impairment losses
|
|
|
(223,000
|
)
|
|
|
(0.3
|
)%
|
|
|
(131,000
|
)
|
|
|
(0.2
|
)%
|
Other
|
|
|
|
|
|
|
0.0
|
%
|
|
|
34,660
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(1,505,327
|
)
|
|
|
(2.3
|
)%
|
|
|
(1,296,839
|
)
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(11,987,871
|
)
|
|
|
(18.7
|
)%
|
|
$
|
(10,568,357
|
)
|
|
|
(16.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted:
|
|
$
|
(.21
|
)
|
|
|
|
|
|
$
|
(.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
Company-owned locations
|
|
|
44
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
Franchises
|
|
|
35
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
International Master Licenses
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated as a percentage of total revenue, except for Route
Expenses which is calculated as a percentage of Product and
services revenue, as route expenses relate solely to Product and
services revenue from operations. |
55
Revenue
Total revenue and the revenue derived from each revenue type for
the year ended December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene services
|
|
$
|
19,895,990
|
|
|
|
31.0
|
%
|
|
$
|
21,948,954
|
|
|
|
33.7
|
%
|
Chemical
|
|
|
6,914,652
|
|
|
|
10.8
|
%
|
|
|
5,797,387
|
|
|
|
8.9
|
%
|
Paper
|
|
|
12,760,759
|
|
|
|
19.9
|
%
|
|
|
13,192,081
|
|
|
|
20.2
|
%
|
Rental and other
|
|
|
6,260,082
|
|
|
|
9.8
|
%
|
|
|
4,088,041
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total products and service
|
|
|
45,831,483
|
|
|
|
71.5
|
%
|
|
|
45,026,463
|
|
|
|
69.1
|
%
|
Franchise and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
11,904,308
|
|
|
|
18.6
|
%
|
|
|
13,338,713
|
|
|
|
20.5
|
%
|
Fees
|
|
|
6,373,100
|
|
|
|
9.9
|
%
|
|
|
6,825,078
|
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise and other
|
|
|
18,277,408
|
|
|
|
28.5
|
%
|
|
|
20,163,791
|
|
|
|
30.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
64,108,891
|
|
|
|
100.0
|
%
|
|
$
|
65,190,254
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the year ended December 31, 2008
decreased $1,081,363 or 1.7% to $64,108,891 as compared to the
same period of 2007. The $1,081,363 decrease includes an
increase of $1,656,188 in revenue from the acquisition of two
franchises in 2008 and four franchises and an independent
chemical company in 2007, which was partially offset by a
$584,615 loss in franchise products sales and fees earned in
2007 from the acquired franchises. Excluding the effect of these
acquisitions, the revenue for the year ended December 31,
2008 as compared to the same period of 2007 decreased $2,152,936
or 3.3% primarily from a decreases of: (i) $3,562,557 or
16.2% in hygiene services; (ii) $704,765 or 5.3% in paper;
and (iii) $1,301,768 or 6.5% in product sales and fees
earned from the companys remaining franchisees. These
decreases were offset by a $1,494,239 or 25.8% increase in
chemical revenue and a $1,921,915 or 47.0% increase in rental
and other sales.
The increase in chemical revenue is attributable to the success
of the companys corporate account and distributor sales
programs that were launched during 2008, as well as sales by the
companys field employees. The decrease in hygiene services
and paper revenue was primarily a result of the prolonged effect
of the challenging economic conditions we have experienced.
These economic conditions resulted in customer attrition, lower
consumption levels of products and services and a reduction or
elimination in spending for hygiene-related products and
services by customers of the company and its franchises.
The decrease in product sales and fees earned from our remaining
franchisees was a result of a 5.7% decrease in customer revenue
experienced by our franchisees. This decline is attributed to
the prolonged effect of the challenging economic conditions
being experienced by our franchisees. These economic conditions
resulted in customer attrition, lower consumption levels of
products and services and a reduction or elimination in spending
for hygiene related products and services by franchise customers.
Cost
of Sales
Cost of sales for the years ended December 31, 2008 and
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%(1)
|
|
|
2007
|
|
|
%(1)
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned operations
|
|
$
|
14,329,153
|
|
|
|
31.3
|
%
|
|
$
|
13,576,370
|
|
|
|
30.2
|
%
|
Sales to Franchisees
|
|
|
10,742,257
|
|
|
|
90.2
|
%
|
|
|
12,282,673
|
|
|
|
92.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
25,071,410
|
|
|
|
39.1
|
%
|
|
$
|
25,859,043
|
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cost as a percentage of the respective product line
revenue. |
56
Cost of sales consists primarily of paper, air freshener,
chemical and other consumable products sold to our customers,
franchisees and international licensees. Total cost of sales for
the year ended December 31, 2008 decreased $787,633 or 3.0%
to $25,071,410 as compared to the same period of 2007. The
$787,633 decrease included an increase of $224,785 related to
the acquisition of two franchises in 2008 and four franchises
and an independent chemical company in 2007. Excluding the
impact of acquisitions, total cost of sales for the year ended
December 31, 2008 as compared to the same period of 2007
decreased $1,012,418 or 3.9%.
The cost of sales for company-owned operations for the year
ended December 31, 2008 increased $752,783 or 5.5% to
$14,329,153 as compared to the same period of 2007. The $752,783
increase included an increase of $224,785 related to the
acquisition of two franchises in 2008 and four franchises and an
independent chemical company in 2007. Cost of sales for
company-owned operations, excluding the impact of acquisitions,
was 31.8% of related revenue for the year ended
December 31, 2008 as compared to 27.5% for the same period
of 2007. Excluding the impact of the acquisitions, cost of sales
for company-owned operations increased $527,998 or 3.9% to
$14,104,368 as compared to the same period of 2007. The $527,998
increase consisted primarily of $1,136,370 in sales mix change
from lower cost hygiene services to higher cost chemical product
sales offset by decreases of $279,577 from lower revenue volume
and $328,795 in cost reductions resulting from purchasing,
freight and operational efficiencies.
Cost of sales to franchisees for the year ended
December 31, 2008 decreased $1,540,416 or 12.5% to
$10,742,257 as compared to the same period of 2007. The
$1,540,416 decrease included a decrease of $354,683 related to
the acquisition of two franchises in 2008 and four franchises
and an independent chemical company in 2007. Cost of sales to
franchisees, excluding the impact of acquisitions was 88.5% of
franchisee product revenue for the year ended December 31,
2008 as compared to 92.1% for the same period of 2007. Excluding
the impact of acquisitions, cost of sales to franchisees for the
year ended December 31, 2008, decreased $1,185,733 or 9.7%
as compared to the same period of 2007. The $1,185,733 decrease
was primarily a result of a decline in products purchased by
franchisees due to a 5.7% decrease in customer revenue
experienced by our franchisees.
Route
Expenses
Route expenses for the years ended December 31, 2008 and
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Route Expenses
|
|
$
|
14,201,243
|
|
|
|
31.0
|
%
|
|
$
|
15,073,727
|
|
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses consist primarily of the costs incurred by the
company for the delivery of products and providing services to
customers.
The details of route expenses for the years ended
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Compensation
|
|
$
|
9,990,412
|
|
|
|
70.4
|
%
|
|
$
|
10,841,868
|
|
|
|
71.9
|
%
|
Vehicle expenses
|
|
|
3,810,394
|
|
|
|
26.8
|
%
|
|
|
3,767,015
|
|
|
|
25.0
|
%
|
Other
|
|
|
400,437
|
|
|
|
2.8
|
%
|
|
|
464,844
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total route expenses
|
|
$
|
14,201,243
|
|
|
|
100.0
|
%
|
|
$
|
15,073,727
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route expenses for the year ended December 31, 2008
decreased $872,484 or 5.8% to $14,201,243 as compared to the
same period of 2007. This $872,484 decrease included an increase
of $257,174 related to the acquisition of two franchises in 2008
and four franchises and an independent chemical company in 2007.
Excluding the impact of the acquisitions of two franchises in
2008 and four franchises and an independent chemical company in
2007, route expenses for the year ended December 31, 2008
as compared to the same period of 2007 decreased $1,129,658 or
7.5% to $13,944,069. The decrease consisted of $1,069,633 in
compensation and $60,025 of other. These cost reductions were a
result of route consolidation and
57
optimization initiatives made in response to the prolonged
effect of the challenging economic conditions we have
experienced.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses for the years ended
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Selling, general and administrative
|
|
$
|
30,112,150
|
|
|
|
47.0
|
%
|
|
$
|
29,115,436
|
|
|
|
44.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses consist primarily
of the costs incurred by the company for:
|
|
|
|
|
Branch office and field management support costs that are
related to field operations. These costs include compensation,
occupancy expense and other general and administrative expenses.
|
|
|
|
Sales expenses, which includes marketing expenses and
compensation and commission for branch sales representatives and
corporate account executives.
|
|
|
|
Corporate office expenses that are related to general support
services, which include executive management compensation and
related costs, as well as department cost for information
technology, human resources, accounting, purchasing and other
support functions.
|
Selling, general and administrative expenses for the year ended
December 31, 2008 increased $996,714, or 3.4%, to
$30,112,150 as compared to the same period of 2007. The $996,714
increase included an increase of $481,100 in expenses related to
the acquisition of two franchises in 2008 and four franchises
and an independent chemical company in 2007. Excluding the
impact of the acquisitions, selling, general and administrative
expenses for the year ended December 31, 2008 as compared
to the same period of 2007 increased $515,614, or 1.8%.
The details of selling, general and administrative expenses for
the year ended December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Compensation
|
|
$
|
20,356,810
|
|
|
|
67.6
|
%
|
|
$
|
18,440,230
|
|
|
|
63.3
|
%
|
Occupancy
|
|
|
2,934,305
|
|
|
|
9.7
|
%
|
|
|
2,758,079
|
|
|
|
9.5
|
%
|
Other
|
|
|
6,821,035
|
|
|
|
22.7
|
%
|
|
|
7,917,127
|
|
|
|
27.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative
|
|
$
|
30,112,150
|
|
|
|
100.0
|
%
|
|
$
|
29,115,436
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation for the year ended December 31, 2008 increased
$1,916,580, or 10.4%, to $20,356,810 as compared to the same
period of 2007. The $1,916,580 increase included an increase of
$432,531 related to the acquisition of two franchises in 2008
and four franchises and an independent chemical company in 2007.
Excluding the impact of acquisitions, compensation expenses for
the year ended December 31, 2008 as compared to the same
period of 2007 increased $1,484,049, or 8.0% to $19,924,279.
This increase is primarily a result of a $940,294 increase in
field compensation costs and a $543,755 increase in compensation
cost related to the July 2007 acquisition of our U.K. master
license. The increase in field compensation was a result of
adding operational support personal in anticipation of future
growth and to operate and manage the significant number of
branch locations added through acquisitions. The increase in
U.K. compensation cost was a result of a full year in
compensation in 2008 as compared to six months in 2007.
Occupancy expenses for the year ended December 31, 2008
increased $176,226, or 6.4%, to $2,934,305 as compared to the
same period of 2007. The $176,226 increase included an increase
of $64,527 related to the acquisition of two franchises in 2008
and four franchises and an independent chemical company in 2007.
Excluding the impact of the acquisitions, occupancy expenses for
the year ended December 31, 2008 as compared to the same
period of 2007, increased $111,699, or 4.0% to $2,869,778. This
increase was primarily a result of rent increases on existing
operating facilities.
58
Other expenses for the year ended December 31, 2008
decreased $1,096,092, or 13.8% to $6,821,035 as compared to the
same period of 2007. The $1,096,092 included a $15,958 decrease
related to the acquisition of two franchises in 2008 and four
franchises and an independent chemical company in 2007.
Excluding the impact of acquisitions, other expenses for the
year ended December 31, 2008 as compared to the same period
of 2007 decreased $1,080,134, or 13.6% to $6,836,993. This
decrease was primarily from reductions of: (i) $330,404 in
bad debt expense; (ii) $182,367 related to the
discontinuation in 2008 of certain business services provided to
franchisees; (iii) $567,363 of marketing and promotion
expenses.
Depreciation
and Amortization
Depreciation and amortization for the years ended
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Depreciation and amortization
|
|
$
|
5,206,632
|
|
|
|
8.1
|
%
|
|
$
|
4,413,566
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization consists of depreciation of
property and equipment and the amortization of intangible
assets. Depreciation and amortization for the year ended
December 31, 2008 increased $793,066 or 18.0% to $5,206,632
as compared to the same period of 2007. The $793,066 increase is
primarily a result of: (i) $493,395 in depreciation for the
development costs and computer equipment supporting a new
comprehensive technology platform, which the company began
depreciating in 2008; (ii) $84,373 of additional
amortization of certain intangible assets resulting from the
acquisitions of two franchises in 2008 and four franchises and
an independent chemical company in 2007; (iii) additional
depreciation on warewashing and chemical dispensing equipment of
$43,905 related to the companys chemical sales
initiatives; and (iv) $171,393 of increased depreciation
from the purchase of other property and equipment in 2008 and
2007.
Other
Income (Expense)
Other income (expense) for the years ended December 31,
2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Interest Income
|
|
$
|
10,337
|
|
|
|
|
|
|
$
|
56,013
|
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(1,292,664
|
)
|
|
|
(2.0
|
)%
|
|
|
(1,256,512
|
)
|
|
|
(1.9
|
)%
|
Impairment losses
|
|
|
(223,000
|
)
|
|
|
(0.3
|
)%
|
|
|
(131,000
|
)
|
|
|
(0.2
|
)%
|
Other
|
|
|
|
|
|
|
|
|
|
|
34,660
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
(1,505,327
|
)
|
|
|
(2.3
|
)%
|
|
$
|
(1,296,839
|
)
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense represents interest on borrowings under the
companys credit facility, notes incurred in connection
with acquisitions and other notes payable for equipment and
software.
The company tests goodwill and other intangible assets for
impairment for all reporting units on an annual basis or when
circumstances change that would more likely than not reduce the
fair value of the reporting unit to an amount that is less than
its carrying amount. For the years ended December 31, 2008
and 2007, impairment losses were recognized on goodwill and
other intangible assets totaling $223,000 and $131,000,
respectively.
59
Cash Flow
Summary
The following table summarizes cash flows for the nine-months
ended September 30, 2010 and September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
Net cash used in operating activities
|
|
$
|
(959,701
|
)
|
|
$
|
(646,086
|
)
|
Net cash used in investing activities
|
|
|
(4,535,576
|
)
|
|
|
(2,522,380
|
)
|
Net cash provided by financing activities
|
|
|
4,868,553
|
|
|
|
3,061,411
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(626,724
|
)
|
|
$
|
(107,055
|
)
|
|
|
|
|
|
|
|
|
|
Operating
Activities
For the nine-months ended September 30, 2010, net cash used
in operating activities increased $313,615 to $(959,701),
compared with net cash used in operating activities of
$(646,086) for the same period of 2009. The $313,615 increase
consisted of a $2,341,619 increased net loss, a lower adjustment
for depreciation and amortization of $296,976 and a $2,324,980
improvement in working capital.
Investing
Activities
For the nine-months ended September 30, 2010, net cash used
in investing activities increased $2,013,196 to $4,535,576
compared with net cash used in investing activities of
$2,522,380 for the same period of 2009. Capital expenditures are
the largest component of our investing activities and consist
primarily of purchases of dispensing equipment, dish machines
and other items in service. Net cash used in investing
activities is also affected by acquisitions activity.
Capital expenditures for the nine-months ended September, 2010
increased $1,706,736 to $3,657,192 as compared to the same
period of 2009. Included in capital expenditures are
expenditures related to the acquisition of three franchises and
three independent companies in 2010 and 18 franchises and an
independent chemical company in 2009, which decreased by
$135,569 in the nine months ended September 30, 2010
compared to the same period of 2009. Excluding the impact of
acquisitions, capital expenditures for the nine-months ended
September 30, 2010 increased $1,842,305 largely a result of
an increase in the purchases of mats, dispensing equipment and
dish machines related to the Companys expansion of its
chemical and facility services program.
Cash used for acquisitions was $890,000 for the nine-months
ended September 30, 2010 as compared to $529,950 for the
same period of 2009.
Financing
Activities
For the nine-months ended September 30, 2010, cash provided
by financing activities increased $1,807,142 to $4,868,553
compared with net cash provided by financing activities of
$3,061,411 for the same period of 2009. Net cash provided from
financing activities consists primarily of: (i) net
proceeds from advances from shareholders; and (ii) payments
on long-term debt.
The net proceeds from advances from shareholders, net of
distributions or repayments was $6,750,000 for the nine-months
ended September 30, 2010 as compared to $4,180,000 for the
same period of 2009. There was no borrowing under the credit
facilities for the nine-months ended September 30, 2010 or
2009 since the Company had borrowed the maximum available under
the credit facilities in 2008. The payments on long-term debt
were $1,881,474 for the nine-months ended September 30,
2010 as compared to $1,118,589 for the same period of 2009.
During the nine-months ended September 30, 2009, the
Company realized a one-time cash inflow of $6,979 from the sale
of a foreign subsidiary.
60
The following table summarizes cash flows for the years ended
December 31, 2009, 2008, and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net cash used in operating activities
|
|
$
|
(5,700,320
|
)
|
|
$
|
(6,770,438
|
)
|
|
$
|
(3,255,360
|
)
|
Net cash used in investing activities
|
|
|
(4,385,655
|
)
|
|
|
(3,654,597
|
)
|
|
|
(6,030,353
|
)
|
Net cash provided by financing activities
|
|
|
11,014,580
|
|
|
|
9,693,281
|
|
|
|
9,604,639
|
|
Effect of foreign exchange rates on cash
|
|
|
|
|
|
|
(160,611
|
)
|
|
|
(19,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
928,605
|
|
|
$
|
(892,365
|
)
|
|
$
|
299,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
For the year ended December 31, 2009, net cash used in
operating activities decreased $1,076,118 to $(5,700,320),
compared with net cash used in operating activities of
$(6,770,438) for the same period of 2008. The $1,070,118
decrease consisted of a $4,728,882 decreased net loss, a lower
adjustment for depreciation and amortization of $462,580 and a
$3,196,184 change in working capital and other non-cash items.
For the year ended December 31, 2008, net cash used in
operating activities increased $3,515,078 to $(6,770,438),
compared with net cash used in operating activities of
$(3,255,360) for the same period of 2007. The $3,515,078
increase consisted primarily of a $1,419,514 increased net loss,
an increased adjustment for depreciation and amortization of
$793,066 and a $2,880,630 change in working capital.
In 2008, the company borrowed $6,296,000 under its line of
credit with Wachovia. In addition, the company borrowed
$5,000,000 and $12,645,000 in 2008 and 2009, respectively, from
Royal Palm Mortgage Group LLC (Royal Palm), an
affiliate of Mr. Huizenga. These moneys were used for
working capital purposes and for the payment of the
distributions of $704,000 and $115,000 in 2008 and 2009 to
shareholders, respectively.
Investing
Activities
For the year ended December 31, 2009, net cash used in
investing activities increased $731,058 to $4,385,655 compared
with net cash used in investing activities of $3,654,597 for the
same period of 2008. For the year ended December 31, 2008,
net cash used in investing activities decreased $2,375,756 to
$3,654,597, compared with net cash used in investing activities
of $6,030,353 for the same period of 2007. Capital expenditures
are the largest component of our investing activities and
consist primarily of purchases of dispensing equipment, dish
machines and other items in service. Net cash used in investing
activities is also affected by acquisitions activity.
Capital expenditures for the year ended December 31, 2009
increased $106,614 to $3,572,957 as compared to the same period
of 2008. The $106,614 increase included $634,873 related to the
acquisition of 18 franchises and an independent chemical company
in 2009 and two franchises in 2008. Excluding the impact of
acquisitions, capital expenditures for the year ended
December 31, 2009 as compared to the same period of 2008
decreased $528,259. This decrease is primarily attributable to
the economic downturn that began in 2008 which resulted in
customer attrition, lower consumption levels of products and
services and a reduction or elimination in spending for
hygiene-related products and services by customers of the
company. Cash used for acquisitions was $839,023 for the year
ended December 31, 2009 as compared to $291,000 for the
same period of 2008.
Capital expenditures for the year ended December 31, 2008
decreased $590,256 to $3,466,343 as compared to the same period
of 2007. The $590,256 decrease included $13,390 related to the
acquisition of two franchises in 2008 and four franchises and an
independent chemical company in 2007. Excluding the impact of
acquisitions, the decrease in capital expenditures for the year
ended December 31, 2008 as compared to the same period of
2007 was $603,646 and is primarily attributable to the economic
downturn that began in 2008 which resulted in customer
attrition, lower consumption levels of products and services and
a reduction or elimination in spending for hygiene-related
products and services by customers of the company.
61
Financing
Activities
For the year ended December 31, 2009, cash provided by
financing activities increased $1,321,299 to $11,014,580,
compared with net cash provided by financing activities of
$9,693,281 for the same period of 2008. For the year ended
December 31, 2008, cash provided by financing activities
increased $88,642 to $9,693,281, compared with net cash provided
by financing activities of $9,604,639 for the same period of
2007. Net cash provided from financing activities consists
primarily of: (i) net proceeds from advances and
contributions from shareholders; (ii) borrowing under
credit facilities; and (iii) payments on long-term debt.
The net proceeds from advances and contributions from
shareholders was $12,645,000 for the year ended
December 31, 2009 as compared to $5,000,000 for the same
period of 2008. The company borrowed $6,296,118 under the credit
facilities for the year ended December 31, 2008. There was
no borrowing under the credit facilities for the year ended
December 31, 2009, since the company had borrowed the
maximum available under the credit facilities in 2008. The
payments on long-term debt were $1,515,420 for the year ended
December 31, 2009 as compared to $886,995 for the same
period of 2008. The company made repayments to shareholders of
$115,000 and $704,000 for the years ended December 31, 2009
and 2008, respectively.
The net proceeds from advances and contributions from
shareholders were $5,000,000 for the year ended
December 31, 2008 as compared to $2,500,000 for the same
period of 2007. The company borrowed $6,296,118 and $7,655,000,
under the credit facilities for the years ended
December 31, 2008 and 2007, respectively. The payments on
long-term debt were $886,995 for the year ended
December 31, 2008 as compared to $550,361 for the same
period of 2007. The company made a repayment to shareholders of
$704,000 in 2008.
Liquidity
and Capital Resources
The company has historically funded the development and growth
of our business with cash generated from operations, shareholder
loans and advances, bank credit facilities and third party
financing for (i) acquisitions; (ii) software
development; and (iii) capital leases for equipment.
In November 2005, we entered into a revolving line of credit
with Wachovia Bank, National Association (Wachovia)
for a maximum borrowing of up to $5,000,000 which was to expire
in November 2008. In March 2008, this line was replaced with a
new line of credit for a maximum borrowing of up to $10,000,000,
which we refer to as the $10 million credit facility.
Borrowings under the $10 million credit facility are used
for general working capital purposes, capital expenditures and
acquisitions. Our obligations under the $10 million credit
facility are guaranteed by certain of our subsidiaries, HB
Services, and its subsidiaries, and Mr. Huizenga.
Mr. Huizenga has guaranteed up to $5 million of our
obligations under the $10 million credit facility. Our
obligations under the $10 million credit facility are
secured by a lien on our assets, including the assets of our
subsidiaries, HB Services, and its subsidiaries. Outstanding
principal, accrued and unpaid interest and other amounts payable
under the $10 million credit facility may be accelerated
upon an event of default. Currently, borrowings under the
$10 million credit facility bear interest at 3.11%, and the
credit facility matures on February 28, 2011.
The $10 million credit facility contained various
restrictive covenants which limit or prevent, without the
express consent of the bank, making loans, advances, or other
extensions of credit, change in control, consolidation, mergers
or acquisitions, issuing dividends, selling, assigning, leasing,
transferring, or disposing of any part of the business and
incurring indebtedness. On October 28, 2010, we received a
consent from Wachovia with respect to the Merger.
In September 2006, HB Service entered into a revolving credit
facility with Wachovia for a maximum borrowing of up to
$15,000,000. In June 2008, this facility was repaid in full and
we entered into a new revolving credit facility for a maximum
borrowing of up to $15,000,000 with a maturity of June 2009,
which we refer to as the $15 million credit facility and
together with the $10 million credit facility, our credit
facility. The credit facility was modified in 2009 to extend the
maturity date to January 1, 2010, and in 2010 to extend the
maturity date further to February 28, 2011. Borrowings
under the $15 million credit facility are
62
used for general working capital purposes, capital expenditures
and acquisitions. HB Services obligations under the
$15 million credit facility are fully guaranteed by
Mr. Huizenga. Outstanding principal, accrued and unpaid
interest and other amounts payable under the $15 million
credit facility may be accelerated upon an event of default.
Currently, borrowings under the $15 million credit facility
bear interest at 1.76%, and the credit facility matures on
February 28, 2011.
The $15 million credit facility contained various
restrictive covenants which limit or prevent, without the
express consent of the bank, making loans, advances, or other
extensions of credit, change in control, consolidation, mergers
or acquisitions, issuing dividends, selling, assigning, leasing,
transferring or disposing of any part of the business and
incurring indebtedness. On October 28, 2010, we received a
consent from Wachovia with respect to the Merger.
On November 5, 2010, we amended our credit facility to
eliminate all restrictive and financial covenants currently
included in the credit facility, except the following:
(i) we must maintain, at all times, unencumbered cash and
cash equivalents in excess of $15,000,000 and (ii) we may
not without the consent of Wachovia incur or permit our
subsidiaries to incur new indebtedness or make new investments
(except for investments in franchisees) in connection with the
acquisition of franchisees and other businesses within our same
line of business in excess of $25 million in the aggregate
at any time. As of October 29, 2010, the outstanding
principal amount under the credit facility was $24,946,932.
In January 2006, the company entered into agreements for the
development of a new software platform for field service
operations, accounting, billings and collections. Substantially
all the software development cost is being financed through a
Master Loan and Security Agreement (the Agreement).
Borrowings under the Agreement are secured by a first security
interest in the software or hardware acquired. The Agreement
prevents a change in control in excess of 20% unless the
acquiring entity assumes all of the companys obligations
under the Agreement and the net tangible assets and net worth
after consolidation, sale or merger is at least equal to the net
tangible assets and our net worth immediately before the
consolidation, sale or merger.
Beginning in May 2008 through June 2010, the company borrowed an
aggregate of $21,445,000 from Royal Palm, an affiliate of
Mr. Huizenga, pursuant to an unsecured promissory note. The
note matures in June 2011. The note bears interest at the
one-month LIBOR plus 2.0%. Interest was 2.23% at
December 31, 2009. In July 2010, Mr. Berrard purchased
$10,722,500 of the total debt, plus accrued interest,
represented by this note. In connection with and immediately
before the Merger, the $21,445,000 note from Royal Palm,
including those amounts of the note purchased by
Mr. Berrard, was cancelled and the amounts owing there
under, plus accrued interest, were contributed as capital.
In the latter part of 2009, Mr. Berrard advanced the
company $800,000 pursuant to an unsecured promissory note. The
advance was repaid in March 2010.
On August 9, 2010, the company borrowed $2,000,000 from
Royal Palm pursuant to an unsecured promissory note. The note
matures on the earlier of the one year anniversary of the
effective time of the Merger or January 1, 2012. The note
bears interest at the short-term Applicable Federal Rate and the
interest rate will adjust on a monthly basis as the short-term
Applicable Federal Rate adjusts. To date, no interest or
principal has been paid. As of August 31, 2010, the
outstanding amount owing under the note was $2,000,651. Upon an
event of default, as defined in the promissory note, the entire
unpaid principal balance of the note and accrued interest shall
be immediately due and payable.
On August 31, 2010, the company borrowed $950,000 and on
October 28, 2010 the company borrowed $320,000 from Royal
Palm, both loans were pursuant to a single unsecured promissory
note. The note bears interest at the short-term Applicable
Federal Rate, which adjusts on a monthly basis as the short-term
Applicable Federal Rate adjusts. The note matured at the
effective time of the Merger and was paid in connection with the
closing.
During the year ended December 31, 2009 and 2008, the
company incurred or assumed $7,954,305 and $240,000,
respectively, of debt to sellers in connection with certain
acquisitions. Two seller notes payable relating to this debt,
totaling $3,050,000, are secured by letters of credit, which are
secured by certain assets
63
of Messrs. Huizenga and Berrard. The remaining notes
payable are secured by the assets of the acquired businesses or
the assets of the company. At December 31, 2009, total
seller notes payable were due in monthly installments totaling
$145,333 and bore interest at rates ranging between 2.5% and
11%. At December 31, 2008, these obligations were due in
monthly installments totaling $42,654 and bore interest at rates
ranging between 5% and 6%. The obligations mature at various
times through 2019.
Our cash requirements for the next twelve months consist
primarily of: (i) capital expenditures associated with
dispensing equipment, dish machines and other items in service
at customer locations and equipment and software;
(ii) financing for acquisitions; (iii) working
capital; and (iv) payment of principal and interest on
borrowings under our credit facility, debt obligations incurred
in connection with acquisitions, and other notes payable for
equipment and software.
As a result of the Merger, our cash and cash equivalents are
expected to increase by approximately $61 million. We do
not expect to assume additional debt or incur any additional
cash requirements relating to our operations as a result of the
Merger. We expect that our cash on hand and the cash flow
provided by operating activities will be sufficient to fund
working capital, general corporate needs and planned capital
expenditure for the next 12 months. However, there is no
assurance that these sources of liquidity will be sufficient to
fund our internal growth initiatives or the investments and
acquisition activities that we may wish to pursue. If we pursue
significant internal growth initiatives or if we wish to acquire
additional businesses in transactions that include cash payments
as part of the purchase price, we may pursue additional debt or
equity sources to finance such transactions and activities,
depending on market conditions.
Contractual
Obligations:
Long-term contractual obligations at September 30, 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
5 or More
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-2 Years
|
|
|
3-4 Years
|
|
|
Years
|
|
|
Long-term debt
|
|
$
|
34,548,683
|
|
|
$
|
27,711,526
|
|
|
$
|
3,249,324
|
|
|
$
|
2,097,201
|
|
|
$
|
1,490,632
|
|
Shareholder Loans
|
|
$
|
24,395,000
|
|
|
|
24,395,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
6,683,753
|
|
|
|
587,929
|
|
|
|
3,140,500
|
|
|
|
1,763,196
|
|
|
|
1,192,128
|
|
Interest payments
|
|
$
|
1,010,625
|
|
|
|
224,298
|
|
|
|
507,241
|
|
|
|
175,212
|
|
|
|
103,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term contractual
cash obligations
|
|
$
|
66,638,061
|
|
|
$
|
52,918,753
|
|
|
$
|
6,897,065
|
|
|
$
|
4,035,609
|
|
|
$
|
2,786,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1 Shareholder loans of $24,395,000 mature
in September 2016 and will be converted to equity as a result of
the Merger. See Note 6 Long Term Debt of the
Notes to Consolidated Financial Statements for a
detailed discussion of long-term debt.
Note 2 The Less than 1 Year column
includes $24,946,932 due under the companys bank lines of
credit. These lines of credit mature in January 2011. While
management intends to renew these lines of credit, there is no
certainty that the lender will agree to renew these loans on
terms that are mutually acceptable. See Note 6 Long
Term Debt of the Notes to Consolidated Financial
Statements for a detailed discussion of long-term debt.
Note 3 Operating leases consist primarily of
facility and vehicle leases.
Note 4 Interest payments include interest on
both fixed and variable rate debt. Rates have been assumed to
increase 75 basis points in fiscal 2011, increase
75 basis points in fiscal 2012, increase 100 basis
points in fiscal 2013, increase 100 basis points in both
fiscal 2014 and 2015 and increase additional 100 basis
points in each year thereafter.
Inflation
and Changing Prices
Changes in wages, benefits and energy costs have the potential
to materially impact the companys financial results. We
believe that we are able to increase prices to counteract the
majority of the inflationary
64
effects of increasing costs and to generate sufficient cash
flows to maintain our productive capability. During the
nine-months ended September 30, 2010 and 2009, we do not
believe that inflation has had a material impact on our
financial position or results of operations. However, we cannot
predict what effect inflation may have on our operations in the
future.
Litigation
and Other Contingencies
The company is subject to legal proceedings and claims which
arise in the ordinary course of our business. Although
occasional adverse decisions (or settlements) may occur, the
company believes that the final disposition of such matters will
not have a material adverse effect on the companys
financial position, results of operations or cash flows.
Off-Balance
Sheet Arrangements
Other than operating leases, there are no off-balance sheet
financing arrangements or relationships with unconsolidated
entities or financial partnerships, which are often referred to
as special purpose entities. Therefore, there is no
exposure to any financing, liquidity, market or credit risk that
could arise, had the company engaged in such relationships.
Quantitative
and Qualitative Disclosures About Market Risk
We are exposed to market risks, including changes in interest
rates and fuel prices. We do not use financial instruments for
speculative trading purposes and we do not hold derivative
financial instruments that could expose us to significant market
risk. We do not currently have any contract with vendors where
we have exposure to the underlying commodity prices. In such
event, we would consider implementing price increases and pursue
cost reduction initiatives; however, we may not be able to pass
on these increase in whole or in part to our customers or
realize costs savings needed to offset these increases. The
following discussion does not consider the effects that an
adverse change may have on the overall economy, and it also does
not consider actions we may take to mitigate our expose to these
changes. We cannot guarantee that the action we take to mitigate
these exposures will be successful.
Interest
Rate Risk
Excluding shareholder advances repaid at the Merger, at
September 30, 2010, we had variable rate debt of
$34,341,932 under two lines of credit with an average periodic
interest rate on outstanding balances that fluctuates based on
LIBOR plus 2.503%. At the above level of borrowings, for every
50 basis point change in LIBOR, interest expense associated
with such borrowings would correspondingly increase or decrease
by approximately $43,000 for each three-month period. This
analysis does not consider the effects of any other changes to
companys capital structure. A 10% change in interest rates
would have an immaterial effect on the fair value of our final
rate debt.
Fuel
Fuel costs represent a significant operating expense. To date,
we have not entered into any contracts or employed any
strategies to mitigate our exposure to fuel costs. Historically,
we have made limited use of fuel surcharges or delivery fees to
help offset rises in fuel costs. Such charges have not been in
the past, and we believe will not be going forward, applicable
to all customers. Consequently, an increase in fuel costs
results in a decrease in our operating margin percentage. At
current consumption level, a $0.50 change in the price of fuel
changes our fuel costs by approximately $266,000 on an annual
basis.
Effects
of the Merger with CoolBrands International
The following unaudited selected pro forma financial data gives
effect to the merger between Swisher International, Inc. and
CoolBrands International Inc. These statements should be read in
conjunction with the Pro Forma Financial Statements and Notes
beginning on page PF-1.
65
Selected Unaudited Pro Forma Financial Data for the nine-months
ended September 30, 2010 and the year ended
December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
$ in thousands
|
|
As Reported
|
|
|
Pro Forma
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
Revenue
|
|
$
|
45,954
|
|
|
$
|
45,954
|
|
|
$
|
56,815
|
|
|
$
|
56,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(6,497
|
)
|
|
$
|
(6,229
|
)
|
|
$
|
(6,814
|
)
|
|
$
|
(8,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,500
|
)
|
|
$
|
(4,827
|
)
|
|
$
|
(7,259
|
)
|
|
$
|
(8,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
(0.13
|
)
|
|
|
(0.04
|
)
|
|
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
Diluted EPS
|
|
|
(0.13
|
)
|
|
$
|
(0.04
|
)
|
|
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
Dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
44,038
|
|
|
$
|
105,500
|
|
|
|
N/R
|
|
|
|
N/R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficit)
|
|
$
|
(26,853
|
)
|
|
$
|
51,447
|
|
|
|
N/R
|
|
|
|
N/R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
8,837
|
|
|
$
|
11,584
|
|
|
|
N/R
|
|
|
|
N/R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/R = not reported
FORWARD-LOOKING
STATEMENTS
Our business, financial condition, results of operations, cash
flows and prospects, and the prevailing market price and
performance of our common stock, may be adversely affected by a
number of factors, including the matters discussed below.
Certain statements and information set forth in this
registration statement, as well as other written or oral
statements made from time to time by us or by our authorized
executive officers on our behalf, constitute
forward-looking statements within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. We
intend for our forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and we
set forth this statement and these risk factors in order to
comply with such safe harbor provisions. You should note that
our forward-looking statements speak only as of the date of this
registration statement or when made and we undertake no duty or
obligation to update or revise our forward-looking statements,
whether as a result of new information, future events or
otherwise. Although we believe that the expectations, plans,
intentions and projections reflected in our forward-looking
statements are reasonable, such statements are subject to risks,
uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed
or implied by the forward-looking statements. The risks,
uncertainties and other factors that our shareholders and
prospective investors should consider include the following:
|
|
|
|
|
We have a history of significant operating losses and as such
our future revenue and operating profitability are uncertain;
|
|
|
|
We may be harmed if we do not penetrate markets and grow our
current business operations;
|
|
|
|
We may require additional capital in the future and no assurance
can be given that such capital will be available on terms
acceptable to us, or at all;
|
|
|
|
Failure to successfully manage our growth could adversely impact
our operating results;
|
|
|
|
We may not be able to properly integrate the operations of
acquired businesses and achieve anticipated benefits of cost
savings or revenue enhancements;
|
|
|
|
We may incur unexpected costs, expenses, or liabilities relating
to undisclosed liabilities of acquired businesses;
|
|
|
|
We may recognize impairment charges which could adversely affect
our results of operations and financial condition;
|
66
|
|
|
|
|
Goodwill resulting from acquisitions may adversely affect our
results of operations;
|
|
|
|
Capital and credit market issues could adversely affect our
liquidity and disrupt the operations of our suppliers and
customers;
|
|
|
|
Failure to implement and maintain effective internal control
over financial reporting could adversely affect our business and
stock price;
|
|
|
|
Our business and growth strategy depends in large part on the
success of our franchisees and international licensees, and our
brand reputation may be harmed by actions out of our control
that are taken by franchisees and international licensees;
|
|
|
|
Failure to retain our current clients and renew existing client
contracts could adversely affect our business;
|
|
|
|
The pricing, terms, and length of customer service agreements
may constrain our ability to recover costs and to make a profit
on our contracts;
|
|
|
|
Changes in economic, market and other conditions could adversely
affect our business;
|
|
|
|
If we are required to change our pricing models to compete
successfully, our margins and operating results may be adversely
affected;
|
|
|
|
Our ability to recruit and retain management and other qualified
personnel is crucial to our ability to develop, market and
support our products and services;
|
|
|
|
Several members of our senior management team are critical to
our business and if these individuals do not remain with us in
the future, it may have an adverse impact on our financial
condition and results of operations;
|
|
|
|
The financial condition and operating ability of third parties
may adversely affect our business;
|
|
|
|
We rely on a multi-national re-distributor to manage our
logistics operations;
|
|
|
|
Increases in fuel and energy costs could adversely affect our
results of operations and financial condition;
|
|
|
|
We may be subject to legal proceedings and disputes;
|
|
|
|
Our products contain hazardous materials and chemicals, which
could result in claims against us;
|
|
|
|
We are subject to environmental, health and safety regulations,
and may be adversely affected by new and changing laws and
regulations, that generate ongoing environmental costs and could
subject us to liability;
|
|
|
|
If our products are improperly manufactured, packaged, or
labelled or become adulterated, those items may need to be
recalled;
|
|
|
|
Changes in the types or variety of our service offerings could
affect our financial performance;
|
|
|
|
We may not be able to adequately protect our intellectual
property and other proprietary rights that are material to our
business;
|
|
|
|
If we are unable to protect our information and
telecommunication systems against disruptions or failures, our
operations could be disrupted;
|
|
|
|
Our business could suffer in the event of a work stoppage or
increased organized labor activity;
|
|
|
|
Insurance policies may not cover all operating risks and a
casualty loss beyond the limits of our coverage could adversely
impact our business;
|
|
|
|
Our revenues and operating results may fluctuate, which could
harm our results of operations;
|
|
|
|
The market price of our common stock may be volatile;
|
67
|
|
|
|
|
The former stockholders of Swisher International will be able to
exert significant control over the corporate actions of Swisher
Hygiene;
|
|
|
|
Future sales of Swisher Hygiene shares by former Swisher
International or CoolBrands stockholders could affect the market
price of our shares; and
|
|
|
|
Provisions of Delaware law and our organizational documents may
delay or prevent an acquisition of our company, even if the
acquisition would be beneficial to our stockholders.
|
DIRECTORS
AND EXECUTIVE OFFICERS
Our directors and executive officers and additional information
concerning them are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director/Officer
|
Name
|
|
Position
|
|
Age
|
|
Since
|
|
H. Wayne Huizenga
|
|
Chairman
|
|
|
72
|
|
|
|
2010
|
|
Steven R. Berrard
|
|
President, Chief Executive Officer and Director
|
|
|
56
|
|
|
|
2004
|
(1)
|
Thomas Aucamp
|
|
Executive Vice President and Secretary
|
|
|
44
|
|
|
|
2006
|
(2)
|
Thomas Byrne
|
|
Executive Vice President
|
|
|
48
|
|
|
|
2004
|
(2)
|
Hugh H. Cooper
|
|
Chief Financial Officer and Treasurer
|
|
|
61
|
|
|
|
2005
|
(2)
|
David Braley
|
|
Director
|
|
|
69
|
|
|
|
2010
|
|
John Ellis Bush
|
|
Director
|
|
|
57
|
|
|
|
2010
|
|
James E. OConnor
|
|
Director
|
|
|
61
|
|
|
|
2010
|
|
David Prussky
|
|
Director
|
|
|
52
|
|
|
|
2010
|
(3)
|
Ramon A. Rodriguez
|
|
Director
|
|
|
65
|
|
|
|
2010
|
|
Michael Serruya
|
|
Director
|
|
|
46
|
|
|
|
1994
|
(4)
|
|
|
|
(1) |
|
This director has served as a director of Swisher International
since the date indicated. |
|
(2) |
|
This executive officer has served as an officer of Swisher
International in the position above since the date indicated. |
|
(3) |
|
Mr. Prussky served an initial term as a director of
CoolBrands from 1994 to 1998. He rejoined the CoolBrands board
of directors in February 2010. Mr. Prussky was appointed a
director of Swisher Hygiene in 2010. |
|
(4) |
|
Mr. Serruya previously served as a director of CoolBrands
since 1994, as Co-President and Co-Chief Executive Officer of
CoolBrands from 1994 to 2000, and as President and Chief
Executive Officer of CoolBrands from 2006 to 2010.
Mr. Serruya was appointed a director of Swisher Hygiene in
2010. |
The term of each of the directors will expire at the close of
our next annual meeting of stockholders, or until his successor
is duly elected or appointed, unless his office is earlier
vacated.
Directors
H. Wayne
Huizenga
Chairman
Mr. Huizenga has been an investor in and stockholder of
Swisher International since 2004. Over his 39 year career,
he has also served as an executive officer and director of
several public and private companies. Mr. Huizenga
co-founded Waste Management, Inc. in 1971, which he helped build
into the worlds largest integrated solid waste services
company. Mr. Huizenga has served as Vice Chairman of Viacom
Inc. and also served as Chairman and Chief Executive Officer of
Blockbuster Entertainment Group, a division of Viacom, which he
helped to grow from a small retail chain into the worlds
largest video store operator. Mr. Huizenga
68
has served as Chairman and Chief Executive Officer of Boca
Resorts, Inc. until its acquisition by The Blackstone Group, as
well as AutoNation, Inc., a leading North American automotive
retail company. He has also served as Chairman or Vice-Chairman
of Republic Services, Inc. and Extended Stay America, Inc.
Mr. Huizenga is an experienced former executive officer and
director of public companies with the skills necessary to serve
as Chairman of the Board. Over his
39-year
career, Mr. Huizenga has founded and developed multiple
companies into industry leaders. As a member of the board of
directors of several public companies, Mr. Huizenga has
developed knowledge and experience leading public companies from
the early stages of development to industry leaders in various
service industries. Mr. Huizenga also provides substantial
management experience gained from his years as an executive
officer of Waste Management, Inc., Blockbuster Entertainment
Group, AutoNation, Inc., and Boca Resorts, Inc.
Steven R.
Berrard
Director, President and Chief Executive Officer
Mr. Berrard has served as Chief Executive Officer and a
director of Swisher International since 2004. He is currently
also Managing Partner of private equity fund New River
Capital Partners, which he co-founded in 1997, director and
Audit Committee member of Walter Investment Management Corp.,
and director of Pivotal Fitness. Throughout most of the
1980s, Mr. Berrard served as President of Huizenga
Holdings, Inc. as well as in various positions with subsidiaries
of Huizenga Holdings. He has served as Chief Executive Officer
of both Blockbuster Entertainment Group (a division of Viacom,
Inc.) and Jamba, Inc. (parent company of Jamba Juice
Company), and co-founded and served as co-Chief Executive
Officer of retail automotive industry leader AutoNation, Inc.
Mr. Berrard has served as director of numerous public and
private companies including Viacom, Inc., Boca Resorts, Inc.,
Birmingham Steel Inc. and HealthSouth Corp.
Mr. Berrard is an experienced executive officer and
director of public companies with relevant industry knowledge
and skills necessary to serve as a director. Mr. Berrard
developed the relevant industry experience and expertise while
serving as the Chief Executive Officer and director of the
company over the last five years. He combines this experience
and expertise with experience as a public company director
through his board memberships at Jamba, Inc., Walter Investment
Management Corp., HealthSouth Corp., Birmingham Steel Inc., Boca
Resorts, Inc. and Viacom, Inc. Mr. Berrard also has
experience and knowledge leading public companies from the early
stages of development to the position of an industry leader
based on his work with AutoNation, Inc. and Blockbuster
Entertainment Group.
Senator
David Braley
Director
Senator Braley was appointed to the Canadian Senate in May 2010.
He is a highly respected Canadian entrepreneur with numerous
business interests including real estate development, and has
extensive experience leading both private operations and sports
franchises. Senator Braley has been the owner and president of
Orlick Industries Limited, an automotive die cast and machining
organization, since 1969 and is the owner of the B.C. Lions and
the Toronto Argonauts of the Canadian Football League (CFL).
Senator Braley was formerly Chairman of the Board of Governors
and Interim Commissioner of the CFL and was founding Chairman of
the Hamilton Entertainment and Convention Facilities Inc.,
operator of several venues in the city of Hamilton, Ontario.
Senator Braley brings to the board of directors his experience
leading a private machining organization and multiple sports
franchises. As the owner and President of Orlick Industries
Limited, Senator Braley has experience and knowledge of
financial, operational, and managerial issues faced by private
companies. As an owner of two franchises of the Canadian
Football League and as a member of the Board of Governors,
Senator Braley has knowledge and skills regarding franchise
matters.
69
John
Ellis (Jeb) Bush
Director
Mr. Bush is currently President and Chief Executive Officer
of the consulting firm Jeb Bush and Associates. Mr. Bush
served in that role since June 2007. Mr. Bush served as the
Governor and Secretary of Commerce of the State of Florida from
January 2000 to January 2007. He is an experienced director of
public companies, currently serving as a director of Rayonier
Inc. and Tenet Healthcare Corporation. Mr. Bush also
established and serves as Chairman of both the Foundation for
Excellence in Education, a
not-for-profit
charitable organization, and The Foundation for Floridas
Future, a
not-for-profit
public policy organization.
Mr. Bush is an experienced director of public companies
with the skills necessary to serve as a director. As a member of
the board of directors of public companies and Governor of the
State of Florida, Mr. Bush has developed knowledge and
experience of financial, operational and managerial matters.
James E.
OConnor
Director
Mr. OConnor is an experienced director and executive
officer of public companies, having served in various capacities
with two Fortune 500 companies. He has been Chief Executive
Officer and Chairman of Republic Services, Inc. since January
2003. From the 1980s through 1998, Mr. OConnor
also acted as a senior officer for various divisions of Waste
Management Inc., including as Senior Vice President of both
Waste Management of Florida, Inc. and Waste
Management North America.
Mr. OConnor is an experienced executive officer and
director of a Fortune 500 company with the skills necessary
to serve as a director. As a result of this experience,
Mr. OConnor has a thorough knowledge and
understanding of financial, operational, compensatory and other
issues faced by large public companies.
David
Prussky
Director
Mr. Prussky was a director and Chair of the Audit Committee
of CoolBrands. He was an original director of the predecessor to
CoolBrands, Yogen Früz World-Wide Inc., Mr. Prussky
has served as an investment banker for Patica Securities Limited
since August 2002. Mr. Prussky has served as director of
numerous public and private companies over the past
16 years, including Carfinco Income Fund, Canadas
largest public specialty auto finance business, and Lonestar
West Inc. Mr. Prussky is also a director of exempt market
dealer Patica Securities Limited which specializes in financing
junior growth and mid-market businesses, and acts as a director
or adviser to several private companies, having helped many grow
from early-stage to significant operating entities.
Mr. Prussky is an experienced director of public companies
with the skills necessary to serve as a director. He has helped
build numerous public and private entities from the early stages
to significant operating entities.
Ramon A.
Rodriguez
Director
Mr. Rodriguez has extensive experience in both public
company directorship and public accounting, developing vast
financial experience and insight into both external and internal
audit functions. He is currently a director and Audit Committee
Chairman of Republic Services, Inc. and Alico, Inc. and a
director of Bank of Florida Corporation. In his 37 years in
public accounting, Mr. Rodriguez has been President and
Chief Executive Officer of Madsen, Sapp, Mena,
Rodriguez & Co., P.A., certified public accountancy
firm, and is past Chairman of the Florida Board of Accountancy
and past President of the Florida Institute of Certified Public
Accountants. He is also a founder and was treasurer of aerospace
and defense company DME Corporation until its sale in 2009.
Mr. Rodriguez is currently retired. Mr. Rodriguez is
a certified public accountant.
70
Mr. Rodriguez is an experienced financial leader with the
skills necessary to serve as a director. He combines this
expertise with experience as a public company director through
his board memberships at Republic Services, Bank of Florida and
Alico. Mr. Rodriguez also provides substantial management
experience gained from his years as an executive of DME
Corporation and as Chief Executive Officer of Madsen, Sapp,
Mena, Rodriguez & Co., P.A.
Michael
Serruya
Director
Mr. Serruya is an experienced director and executive
officer of public companies. He is co-founder, past Chairman,
President, Chief Executive Officer and director of CoolBrands.
Mr. Serruya served as Co-President and Co-Chief Executive
Officer of CoolBrands from 1994 to 2000, as Co-Chairman of
CoolBrands in 2005, as President and Chief Executive Officer of
CoolBrands from 2006 until the Merger in November 2010.
Mr. Serruya served as a director of CoolBrands since 1994
until the Merger in November 2010. Mr. Serruya was also
President, Chief Executive Officer and Chairman of
CoolBrands predecessor, Yogen Früz World-Wide Inc. He
is also director of Jamba, Inc. (owner of Jamba Juice Company)
and a director and member of the Audit Committee of Response
Genetics, Inc.
Mr. Serruya is an experienced executive officer and
director of public companies with the skills necessary to serve
as a director. Mr. Serruya has experience leading a
franchise organization. He combines that franchise experience
with licensing and consumer products expertise.
Executive
Officers
Thomas
Aucamp
Executive Vice President and Secretary
Mr. Aucamp has served as Executive Vice President of
Swisher International since 2006. He brings public equity,
business development and management experience to Swisher.
Mr. Aucamp is currently also a Partner of New River Capital
Partners, a private equity fund, which he co-founded in 1997.
Mr. Aucamp was a founder, Vice President, and on the board
of directors of Services Acquisition Corp. International from
its initial public offering in 2005 through its merger with
Jamba Juice, Inc. in 2006. Previously, Mr. Aucamp was Vice
President of Corporate Development and Strategic Planning for
Blockbuster Entertainment Group and prior to joining Blockbuster
in 1995, he was in the mergers and acquisitions department of
W.R. Grace & Co., Inc. Mr. Aucamp has an M.B.A.
from Dukes Fuqua School of Business and an undergraduate
degree from Harvard University. Mr. Aucamp was a former
Chairperson of the Florida Venture Forum.
Thomas
Byrne
Executive Vice President
Mr. Byrne has served as Executive Vice President of Swisher
International since 2004 and Director of Swisher International
from 2004 until the Merger. He has served as a director of
numerous public and private companies and brings experience in
public equity investment and accounting to Swisher.
Mr. Byrne is a director of Certilearn, Inc., ITC Learning,
Pivotal Fitness and the Private Equity Committee of the
University of Florida Foundation, and has also served as a
director of Jamba, Inc. Previously, Mr. Byrne was
Administrative Partner of New River Capital Partners, a private
equity fund, which he co-founded in 1997, Vice Chairman of
Blockbuster Entertainment Group (a division of Viacom, Inc.) and
was also President of the Viacom Retail Group. Additionally,
Mr. Byrne was employed by KPMG Peat Marwick. Mr. Byrne
has a B.S. and M.A. in Accounting from the University of Florida
and is a certified public accountant.
Hugh H.
Cooper
Chief Financial Officer and Treasurer
Mr. Cooper has served as Chief Financial Officer of Swisher
International since 2005. Prior to joining Swisher,
Mr. Cooper co-founded CoreVision Strategies, an enterprise
that works with companies to create and implement successful
financial and management strategies. Mr. Cooper has over
33 years of diverse general
71
management, operations and accounting experience in a variety of
industries. During the saving and loan crisis of the late 1980s
and early 1990s, Mr. Cooper provided nationwide management
and consulting services to the Resolution
Trust Corporation, assisting regulators with the management
and disposition of several financial institutions.
Mr. Cooper began his career in 1976 with Deloitte LLP, then
Haskins and Sells, after graduating from Florida Atlantic
University.
Family
Relationships and Involvement in Certain Legal
Proceedings
There are no family relationships between any of our executive
officer or directors.
None of our directors or executive officers have been within the
10 years before the date of this registration statement a
director or executive officer of any company that, while that
person was acting in that capacity, or within two years before
the time of such filing, became bankrupt, made a proposal under
any legislation relating to bankruptcy or insolvency or was
subject to or instituted any proceedings, arrangement or
compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold its assets, except:
(1) Mr. Berrard served as Chairman of the Board of
Directors of Gerald Stevens, Inc., when it filed a petition for
bankruptcy in April 2001; (2) Mr. Huizenga served as a
director of NationsRent, Inc. and resigned from the board of
directors approximately six months prior to the time that
NationsRent, Inc. filed a voluntary petition for bankruptcy in
December 2001; (3) Mr. Cooper served as Chief
Financial Officer of Fuzion Technologies, Inc. and resigned as
an officer of the company prior to the time that Fuzion
Technologies, Inc. filed a petition for bankruptcy in December
2001; (4) Mr. Byrne served as a director of ITC
Learning, Inc. when it filed a petition for bankruptcy in July
2002; and (5) Mr. Prussky served as a director of
Hamilton Tool Corp. when it filed a petition for bankruptcy in
April 2003.
Corporate
Governance
Board
of Directors
The business and affairs of the company shall be managed by or
under the direction of the board of directors. Pursuant to our
bylaws, the board of directors may establish one or more
committees of the board of directors, however designated, and
delegate to any such committee the full power of the board of
directors, to the fullest extent permitted by law.
The board of directors intends to have regularly scheduled
meetings and at such meetings our independent directors will
meet in executive session.
Composition. The board of directors consists
of the following eight members: H. Wayne Huizenga, (Chairman);
Steven R. Berrard; David Braley; John Ellis Bush; James E.
OConnor; David Prussky; Ramon A. Rodriguez and Michael
Serruya. See Directors and Executive Officers for
biographical information regarding the members of the board of
directors.
Orientation and Continuing Education. The
board of directors will hold a meeting shortly after a new
member joins the board of directors to provide such new member
with an overview of the responsibilities of the board of
directors and information regarding our business.
The board of directors will hold meetings, as deemed
appropriate, to provide continuing education to its directors.
Director
Independence
The board of directors has determined that the following
directors, which constitute a majority of the board of
directors, are independent in accordance with
applicable Canadian securities laws and the Nasdaq Stock Market
listing standards: Senator Braley; Mr. Bush;
Mr. OConnor; Mr. Prussky; and Mr. Rodriguez.
Committees
Upon completion of the Merger, the board of directors
established an Audit Committee, a Compensation Committee and a
Governance and Nominating Committee. Each of these committees
operates under a written
72
charter adopted by the board of directors which sets forth the
scope of the responsibilities of that committee. The board of
directors will assess the effectiveness and contribution of each
committee on an annual basis.
Audit Committee. Upon completion of the
Merger, the board of directors established an Audit Committee
comprised solely of independent directors in accordance with
applicable securities laws and as defined in the Nasdaq rules.
The Audit Committee consists of three members, Ramon A.
Rodriguez, Chairman, David Braley and David Prussky. All members
of the Audit Committee are financially literate.
See Directors and Executive Officers in this
document for a brief description of each Audit Committee
members education and experience that is relevant to the
performance of his responsibilities as an Audit Committee member.
The Audit Committee operates under a written charter which sets
forth the scope of responsibilities of the committee. The
primary function of the Audit Committee is to assist the board
of directors in fulfilling its responsibilities by overseeing
our accounting and financial processes and the audits of our
financial statements. The independent auditor is ultimately
accountable to the Audit Committee, as representatives of the
stockholders. The Audit Committee has the ultimate authority and
direct responsibility for the selection, appointment,
compensation, retention and oversight of the work of the
companys independent auditor that is engaged for the
purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the company
(including the resolution of disagreements between management
and the independent auditors regarding financial reporting), and
the independent auditor must report directly to the Audit
Committee. The Audit Committee also is responsible for the
review of proposed transactions between the company and related
parties. See Certain Relationships and Related Transactions in
this document.
The Audit Committee has adopted a policy and related procedures
requiring its pre-approval of all audit and non-audit services
to be rendered by its independent registered public accounting
firm. These policies and procedures are intended to ensure that
the provision of such services do not impair the independent
registered public accounting firms independence. These
services may include audit services, audit-related services, tax
services and other services. The policy provides for the annual
establishment of fee limits for various types of audit services,
audit-related services, tax services and other services, within
which the services are deemed to be pre-approved by the Audit
Committee. The independent registered public accounting firm is
required to provide to the Audit Committee
back-up
information with respect to the performance of such services.
The Audit Committee has delegated to its Chair the authority to
pre-approve services, up to a specified fee limit, to be
rendered by the independent registered public accounting firm
and requires that the Chair report to the Audit Committee any
pre-approval decisions made by the Chair at the next scheduled
meeting of the Audit Committee.
The following table set forth the fees paid to Scharf
Pera & Co., PLLC, our independent registered public
accounting firm during the years ended December 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Audit Fees
|
|
$
|
308,704
|
|
|
$
|
112,867
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
21,253
|
|
|
|
21,224
|
|
All Other
Fees(1)
|
|
|
11,582
|
|
|
|
14,580
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
341,539
|
|
|
$
|
148,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents fees billed by Scharf Pera & Co., PLLC in
connection with its audit of our 401(k) Plan. |
Compensation Committee. The board of directors
established a Compensation Committee comprised solely of
independent directors as defined in the Nasdaq rules. The
Compensation Committee consists of three members, James
OConnor, Chairman, Ramon A. Rodriguez and John Ellis Bush.
See the Compensation Discussion and Analysis below
for a discussion of the Compensation Committees process
for determining compensation and responsibilities.
73
Governance and Nominating Committee. The board
of directors established a Governance and Nominating Committee
comprised solely of independent directors as defined in the
Nasdaq rules. The Governance and Nominating Committee consists
of three members, John Ellis Bush, Chairman, David Braley and
David Prussky. The Governance and Nominating Committee is
responsible for monitoring and overseeing matters of corporate
governance and selecting, evaluating and recommending to the
board qualified candidates for election or appointment to the
board of directors. The Governance and Nominating Committee has
adopted procedures to be followed in connection with nominations
to the board of directors (the Nomination
Procedures). A copy of the Nomination Procedures can be
found on our website at www.swisherhygiene.com.
The Governance and Nominating Committee will consider all
qualified candidates identified by various sources, including
members of the board of directors, management and stockholders.
Candidates for directors recommended by stockholders will be
given the same consideration as those identified from other
sources. The Governance and Nominating Committee is responsible
for reviewing each candidates biographical information,
meeting with each candidate and assessing each candidates
independence, skills and expertise based on a number of factors.
Code of
Ethics
Upon completion of the Merger, the board of directors adopted a
Code of Business Conduct and Ethics, which is applicable to all
officers, directors and employees, including the Chief Executive
Officer and Chief Financial Officer. See our website at
www.swisherhygiene.com for a copy of our Code of Business
Conduct and Ethics.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
This discussion and analysis describes the material elements of
compensation awarded to, earned by, or paid to the named
executive officers of Swisher during 2009, and provides a brief
summary of the compensation to be paid to the named executive
officers in 2010 and 2011. Throughout this analysis, the
individuals who served as the Chief Executive Officer and Chief
Financial Officer during 2009, as well as other individuals
included in the Summary Compensation Table below, are referred
to as the named executive officers.
During 2009, Swisher was a private company and its executive
officers consisted of Steven R. Berrard, Thomas Aucamp, Thomas
Byrne, and Hugh H. Cooper. Before the Merger, we did not have an
established Compensation Committee, and all compensation
decisions were made by the Chief Executive Officer. After the
Merger, the board of directors established a Compensation
Committee comprised of Messrs. OConnor (Chairman),
Ramon A. Rodriguez, and John Ellis Bush. The Compensation
Committee is responsible for the oversight, implementation, and
administration of all of the executive compensation plans and
programs after the Merger.
Compensation
Policies and Practices for 2009
The core objective of our compensation programs for 2009 was to
secure and retain the services of high quality executives. For
2009, base salary was the principal component of compensation
for the named executive officers. When determining base salary
for 2009, Mr. Berrard did not use any specific formula,
factors, or particular criteria to be met by a named executive
officer and did not assign any relative weight to any factors or
criteria he considered. Rather, Mr. Berrard exercised his
judgment, discretion, and experience with route-based, recurring
revenue businesses and industries by considering all factors he
deemed relevant. In determining base salaries for 2009,
Mr. Berrard considered, the experience, skills, knowledge
and responsibilities of the named executive officers in their
respective roles. Mr. Berrard determined to forgo any
salary during 2009. Base salaries for 2009 for the remaining
named executive officers were $207,692 each.
74
In 2009, named executive officers received additional
compensation in the form of vacation, medical, 401(k), and other
benefits generally available to all of our full time employees.
Compensation
Policies and Practices for 2010
The core objectives of our compensation programs for 2010 are to
secure and retain the services of high quality executives and to
provide compensation to our executives that are commensurate and
aligned with our performance and advances both short and
long-term interests of ours and our stockholders. We seek to
achieve these objectives through two principal compensation
programs: (1) a base salary and (2) long-term equity
incentives, and (3) an annual cash incentive bonus. Base
salaries are designed primarily to attract and retain talented
executives. Grants of equity awards are designed to provide a
strong incentive for achieving long-term results by aligning
interests of our executives with those of our stockholders,
while at the same time encouraging our executives to remain with
the company. The Compensation Committee believes that our
compensation programs for the named executive officers is
appropriately based upon our performance and the performance and
level of responsibility of the executive officer.
Named
Executive Officer Compensation Components for 2010
For 2010, base salary and long-term equity incentive
compensation, are the principal components of compensation for
the named executive officers.
Base
Salary
A significant portion of total compensation for 2010 will be
comprised of base salary, which enables us to attract and retain
talented executive management through the payment of reasonable
current income. When determining base salary, Mr. Berrard
did not use any specific formula, factors, or particular
criteria to be met by a named executive officer and did not
assign any relative weight to any factors or criteria he
considered. Rather, Mr. Berrard exercised his judgment,
discretion, and experience with route-based, recurring revenue
businesses and industries by considering all factors he deemed
relevant. In determining base salaries for 2010,
Mr. Berrard considered, the experience, skills, knowledge
and responsibilities of the named executive officers in their
respective roles. As of December 10, 2010, Mr. Berrard
received $153,846 in salary for 2010. Base salaries for 2010 for
the remaining named executive officer are $200,000 each.
Long-Term
Equity Incentive Compensation
On November 2, 2010, our board of directors approved the
Swisher Hygiene Inc. 2010 Stock Incentive Plan to attract,
retain, motivate and reward key officers and employees. The
Plan, which is subject to stockholder and TSX approval, allows
for the grant of stock options, restricted stock units and other
equity instruments up to a total of 6,000,000 shares of our
common stock. Under the Plan, the board approved awards of
options to purchase 1,001,137 shares of our common stock.
The options vest in four equal annual installments beginning on
the first anniversary of the grant date and are exercisable at
$4.18 per share. The options expire in 2020. The board also
approved the award of 2,507,449 restricted stock units at
$4.18 per share. The restricted stock units vest in four equal
annual installments beginning on the first anniversary of the
grant date.
Among the awards made under the Plan, the Compensation Committee
granted equity awards to our named executive officers as follows:
|
|
|
|
|
|
|
|
|
Name
|
|
Restricted Stock Units
|
|
|
Stock Options
|
|
|
Steve Berrard
|
|
|
251,196
|
|
|
|
107,656
|
|
Thomas Byrne
|
|
|
115,550
|
|
|
|
49,522
|
|
Thomas Aucamp
|
|
|
110,526
|
|
|
|
47,368
|
|
Hugh Cooper
|
|
|
122,500
|
|
|
|
52,500
|
|
Named executive officers will also receive additional
compensation in the form of vacation, medical, 401(k), and other
benefits generally available to all of our full time employees.
75
Compensation
Policies and Practices for 2011
The core objectives of our compensation programs for 2011 are to
secure and retain the services of high quality executives and to
provide compensation to our executives that are commensurate and
aligned with our performance and advances both short and
long-term interests of ours and our stockholders. We seek to
achieve these objectives through three principal compensation
programs: (1) a base salary, (2) long-term equity
incentives. Base salaries are designed primarily to attract and
retain talented executives. Grants of equity awards are designed
to provide a strong incentive for achieving long-term results by
aligning interests of our executives with those of our
stockholders, while at the same time encouraging our executives
to remain with the company. Annual cash incentives are designed
to motivate and reward the achievement of selected financial
goals, generally tied to profitability. The Compensation
Committee believes that our compensation programs for the named
executive officers is appropriately based upon our performance
and the performance and level of responsibility of the executive
officer.
Named
Executive Officer Compensation Components for 2011
For 2011, base salary, long-term equity incentive compensation,
and an annual cash incentive bonus opportunity are the principal
components of compensation for the named executive officers.
Base
Salary
A significant portion of total compensation for 2011 will be
comprised of base salary, which enables us to attract and retain
talented executive management through the payment of reasonable
current income. On November 2, 2010, the Compensation
Committee approved, based on the recommendation of
Mr. Berrard, the 2011 compensation for our named executive
officers other than Mr. Berrard, and determined and
approved 2011 compensation for Mr. Berrard.
Mr. Berrard reviewed the performance of each of the named
executive officers (other than himself) and the compensation
paid to those individuals during the past fiscal year, and made
recommendations to the Compensation Committee regarding the
compensation to be paid to those individuals during 2011. When
determining base salary for 2011, the Compensation Committee did
not use any specific formula, factors, or particular criteria
that must be met by each named executive officer and did not
assign any relative weight to any factors or criteria it
considered. Rather, the Compensation Committee relied on its own
business experience, judgment and discretion by considering all
factors it deemed relevant. In determining base salaries for
2011, the Compensation Committee considered, the experience,
skills, knowledge and responsibilities of the named executive
officers in their respective roles. The Compensation Committee
increased Mr. Berrards salary for 2011 after
considering his responsibilities as a chief executive officer of
a public company with a significant growth strategy,
Mr. Berrards prior contributions to the company for
which he had not received commensurate compensation and
Mr. Berrards expected future contributions to the
company and its growth strategy. For 2011, base salary will be
$500,000 for Mr. Berrard, $230,000 for Mr. Byrne,
$220,000 for Mr. Aucamp, and $200,000 for Mr. Cooper.
Long-Term
Equity Incentive Compensation
At this time, the Compensation Committee has not approved the
terms of long-term equity incentive compensation for 2011.
Annual
Cash Incentive Bonus
At this time, the Compensation Committee has not approved the
terms of long-term equity incentive compensation for 2011.
Names executive officers will also receive additional
compensation in the form of vacation, medical, 401(k), and other
benefits generally available to all of our full time employees.
76
Summary
Compensation Table
The following table sets forth certain summary information
concerning compensation paid or accrued by us to or on behalf of
the named executive officers for 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation(1)
|
|
Total
|
|
Steve R. Berrard
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugh H. Cooper
|
|
|
2009
|
|
|
$
|
207,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
154
|
|
|
|
|
|
|
$
|
207,846
|
|
Chief Financial Officer and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Aucamp
|
|
|
2009
|
|
|
$
|
207,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
207,692
|
|
Executive Vice President and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byrne
|
|
|
2009
|
|
|
$
|
207,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
615
|
|
|
|
|
|
|
$
|
208,307
|
|
Executive Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Each named executive officer did not receive other compensation
that exceeded $10,000 during 2009. |
Potential
Payments upon Termination or
Change-in-Control
The named executive officers do not have employment agreements
with us and are all employed on an at will basis. We
do not have arrangements with any of our named executive
officers providing for additional benefits or payments in
connection with a termination of employment, change in job
responsibility, or a
change-in-control.
Director
Compensation
No director received compensation for services rendered during
2009 or for 2010 before the Merger. Upon completion of the
Merger, our board of directors approved director compensation
for our non-employee directors as follows:
|
|
|
|
|
an annual fee of $60,000, paid quarterly on a calendar year
basis;
|
|
|
|
an annual committee chairman fee of $10,000, paid quarterly on a
calendar year basis to the Chairmen of each of our Audit
Committee, Compensation Committee, and Nominating and Corporate
Governance Committee;
|
|
|
|
a per meeting fee of $1,500, paid quarterly in arrears on a
calendar year basis;
|
|
|
|
a per committee meeting fee of $1,500, paid quarterly in arrears
on a calendar year basis;
|
|
|
|
an annual grant of $35,000 in restricted stock units, paid on
the first day of the month following our annual meeting of
stockholders; and
|
|
|
|
a one time grant of $25,000 in restricted stock units, paid to
each non-employee director upon their election or appointment to
the board.
|
Fees not designated to be paid in restricted stock units may be
accepted as cash or restricted stock units at the
directors discretion.
77
Certain
Relationships and Related Transactions
Loans
and Advances from Stockholders
The company has funded a significant amount of its growth and
development through stockholder loans and advances. From May
2008, through June 2010, the company borrowed an aggregate of
$21,445,000 from Royal Palm, an affiliate of Mr. Huizenga,
pursuant to an unsecured promissory note (the Royal Palm
Note), which has been amended as additional amounts have
been advanced. The note bears interest at LIBOR plus two basis
points. A schedule of the dates and amounts advanced by Royal
Palm pursuant to the Royal Palm Note through May, 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
Date of Note
|
|
Amount
|
|
|
|
|
|
05/15/2008
|
|
$
|
2,500,000
|
|
|
|
|
|
09/16/2008
|
|
|
2,500,000
|
|
|
|
|
|
03/24/2009
|
|
|
1,200,000
|
|
|
|
|
|
06/02/2009
|
|
|
2,000,000
|
|
|
|
|
|
04/13/2009
|
|
|
250,000
|
|
|
|
|
|
07/10/2009
|
|
|
595,000
|
|
|
|
|
|
09/21/2009
|
|
|
250,000
|
|
|
|
|
|
10/14/2009
|
|
|
1,500,000
|
|
|
|
|
|
12/04/2009
|
|
|
250,000
|
|
|
|
|
|
12/09/2009
|
|
|
5,800,000
|
|
|
|
|
|
03/25/2010
|
|
|
2,100,000
|
|
|
|
|
|
05/26/2010
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,445,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In July 2010, Mr. Berrard purchased $10,722,500 of the
total debt, including accrued interest, represented by the Royal
Palm Note. $16,845,000 of the borrowings under the Royal
Palm Note are reported in our audited financial statements as of
and for the year ended December 31, 2009 as a long-term
liability. The aggregate $21,445,000, including $4,600,000
borrowed from Royal Palm during the six months ended
June 30, 2010, are reported in our unaudited interim
financial statements as of and for the nine months ended
September 30, 2010 as a current liability because the
aggregate note was contributed as capital on November 2,
2010, in connection with the Merger.
Subsequent to June 30, 2010, the company borrowed
$2,000,000, $950,000 and $320,000 from Royal Palm on
August 9, 2010, August 31, 2010, and October 25,
2010, respectively, pursuant to unsecured promissory notes. The
notes bear interest at the short-term Applicable Federal Rate,
as adjusted on a monthly basis. The $2,000,000 note matures on
November 2, 2011. The $1,270,000 note matured and was
repaid on the closing date of the Merger.
In November and December 2009, Mr. Berrard advanced
$800,000 to the company pursuant to an unsecured promissory
note. The advance was repaid in March 2010.
Stockholder
Guarantees
During the years ended December 31, 2009 and 2008, the
company incurred or assumed $7,954,305 and $240,000,
respectively, of debt to sellers in connection with certain
acquisitions. Two of the seller notes payable, totaling
$3,050,000, are secured by letters of credit, which are secured
by certain assets of Messrs. Huizenga and Berrard.
Our revolving credit facilities, which provide for borrowings in
aggregate of up to $25,000,000, are personally guaranteed for up
to $20,000,000 by Mr. Huizenga.
78
HB
Service, LLC
In March 2005, Messrs. Berrard and Huizenga formed HB
Service, LLC to acquire franchises and related businesses under
the Swisher name. Through September 2010, HB Service acquired
and operated 68 former franchises of the company and purchased
nine other related businesses, for an aggregate of $28,593,333.
Effective July 13, 2010, HB Service entered into a
Contribution Agreement with the company pursuant to which
Messrs. Huizenga and Berrard contributed their membership
interests in HB Service to the company, at which time HB Service
became a wholly-owned subsidiary of the company.
New
River Capital Partners
From 2006 until 2008, the company agreed to pay New River
Capital Partners, a company owned by Messrs. Berrard, Byrne
and Aucamp, a fee for services provided, including product
development, marketing and branding strategy, and management
advisory assistance totaling $500,000. In 2009, the related
company waived it rights to these fees and accordingly, the
accrued balance of $500,000, which was outstanding as of
December 31, 2008, has been recorded as forgiveness of debt.
For the year ended December 31, 2009, we incurred $46,200
for training course development and utilization of the delivery
platform from CertiLearn, Inc., the majority of which is owned
by New River Capital Partners. Included in accrued expenses at
December 31, 2009 is $145,586 due to CertiLearn, Inc.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 10, 2010,
information regarding the beneficial ownership of our common
stock by each director, each named executive officer, all of the
directors and executive officers as a group, and each other
person or entity known to us to be the beneficial owner of more
than five percent of our common stock. Unless noted otherwise,
the corporate address of each person listed below is
4725 Piedmont Row Drive, Suite 400, Charlotte, North
Carolina, 28210.
|
|
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|
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|
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|
Amount and
|
|
|
|
|
Nature of
|
|
|
|
|
Beneficial
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Ownership
|
|
Class(1)
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
H. Wayne Huizenga
|
|
|
25,005,359
|
|
|
|
21.9
|
%
|
Steven R. Berrard
|
|
|
25,005,311
|
(2)
|
|
|
21.9
|
%
|
Thomas Aucamp
|
|
|
1,300,265
|
(2)
|
|
|
1.1
|
%
|
Thomas Byrne
|
|
|
1,300,265
|
(2)
|
|
|
1.1
|
%
|
Hugh H. Cooper
|
|
|
|
|
|
|
|
|
David Braley
|
|
|
5,194,800
|
|
|
|
4.6
|
%
|
John Ellis Bush
|
|
|
|
|
|
|
|
|
James E. OConnor
|
|
|
|
|
|
|
|
|
David Prussky
|
|
|
263,000
|
(3)
|
|
|
*
|
|
Ramon A. Rodriguez
|
|
|
|
|
|
|
|
|
Michael Serruya
|
|
|
7,672,666
|
(4)
|
|
|
6.4
|
%
|
Directors and Executive Officers as a group (11 persons)
|
|
|
65,741,666
|
(5)
|
|
|
55.0
|
%
|
|
|
|
* |
|
The person beneficially owns less than 1% of Swishers
outstanding common stock. |
|
|
|
(1) |
|
Based on 114,015,063 shares of our common stock outstanding
as of December 10, 2010. |
|
|
|
(2) |
|
The shares of common stock held by these executive officers have
been pledged to H. Wayne Huizenga as security for certain
obligations owing pursuant to stock pledge and security
agreements by each executive officer for the benefit of
Mr. Huizenga. |
79
|
|
|
(3) |
|
Consists of 210,000 shares of common stock held by
Mr. Prussky, 33,000 shares of common stock held by
Mr. Prusskys spouse, Erica Prussky, and options to
purchase 20,000 shares of common stock. |
|
|
|
(4) |
|
Consists of 133,515 shares of common stock held by
Mr. Serruya, 2,039,151 shares of common stock held by
1082272 Ontario Inc., and warrants to purchase
5,500,000 shares of common stock registered in the name of
Mr. Serruya. Of these warrants, Mr. Serruya is the
beneficial owner of warrants to purchase 299,776 shares of
common stock, and Mr. Serruya holds the balance of such
warrants on behalf of and in trust for various members of the
Serruya family. 1082272 Ontario Inc., an entity owned 50% by
Michael Serruya and 50% by his brother, Aaron Serruya, owns
4,078,301 shares of common stock. Michael Serruya is a
director and President of 1082272 Ontario Inc., and exercises
voting and dispositive power over half the shares of common
stock held by 1082272 Ontario Inc. Aaron Serruya exercises
voting and dispositive power over the other shares of Swisher
Hygiene held by 1082272 Ontario Inc. |
|
|
|
(5) |
|
Includes warrants to purchase 5,500,000 shares of common
stock and options to purchase 20,000 shares of common stock. |
PLAN OF
DISTRIBUTION
We are registering the shares of common stock to permit the
resale of these shares of common stock by the holders of the
common stock from time to time after the date of this
prospectus. We will not receive any of the proceeds from the
sale by the selling stockholders of the shares of common stock.
We will bear all fees and expenses incident to our obligation to
register the shares of common stock.
The selling stockholders may sell all or a portion of the shares
of common stock beneficially owned by them and offered hereby
from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of common stock are sold
through underwriters or broker-dealers, the selling stockholders
will be responsible for underwriting discounts or commissions or
agents commissions. The shares of common stock may be sold
in one or more transactions at fixed prices, at prevailing
market prices at the time of the sale, at varying prices
determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses
or block transactions,
|
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|
|
|
on any national securities exchange or quotation service on
which the securities may be listed or quoted at the time of sale;
|
|
|
|
in the
over-the-counter
market;
|
|
|
|
in transactions otherwise than on these exchanges or systems or
in the
over-the-counter
market;
|
|
|
|
through the writing of options, whether such options are listed
on an options exchange or otherwise;
|
|
|
|
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
|
|
|
|
block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
|
|
|
|
purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
|
|
|
|
an exchange distribution in accordance with the rules of the
applicable exchange;
|
|
|
|
privately negotiated transactions;
|
|
|
|
sales pursuant to Rule 144;
|
|
|
|
broker-dealers may agree with the selling securityholders to
sell a specified number of such shares at a stipulated price per
share;
|
|
|
|
a combination of any such methods of sale; and
|
|
|
|
any other method permitted pursuant to applicable law.
|
If the selling stockholders effect such transactions by selling
shares of common stock to or through underwriters,
broker-dealers or agents, such underwriters, broker-dealers or
agents may receive commissions in
80
the form of discounts, concessions or commissions from the
selling stockholders or commissions from purchasers of the
shares of common stock for whom they may act as agent or to whom
they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or
agents may be in excess of those customary in the types of
transactions involved). In connection with sales of the shares
of common stock or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the
course of hedging in positions they assume. The selling
stockholders may also sell shares of common stock short and
deliver shares of common stock covered by this prospectus to
close out short positions and to return borrowed shares in
connection with such short sales. The selling stockholders may
also loan or pledge shares of common stock to broker-dealers
that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest
in some or all of the shares of common stock owned by them and,
if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of
common stock from time to time pursuant to this prospectus or
any amendment to this prospectus under applicable provisions of
the Securities Act of 1933, as amended, amending, if necessary,
the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders
also may transfer and donate the shares of common stock in other
circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling beneficial
owners for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in
the distribution of the shares of common stock may be deemed to
be underwriters within the meaning of the Securities
Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act.
At the time a particular offering of the shares of common stock
is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares
of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation
from the selling stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common
stock may be sold in such states only through registered or
licensed brokers or dealers. In addition, in some states the
shares of common stock may not be sold unless such shares have
been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is
complied with.
There can be no assurance that any selling stockholder will sell
any or all of the shares of common stock registered pursuant to
this registration statement, of which this prospectus forms a
part.
The selling stockholders and any other person participating in
such distribution will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder, including, without limitation,
Regulation M of the Exchange Act, which may limit the
timing of purchases and sales of any of the shares of common
stock by the selling stockholders and any other participating
person. Regulation M may also restrict the ability of any
person engaged in the distribution of the shares of common stock
to engage in market-making activities with respect to the shares
of common stock. All of the foregoing may affect the
marketability of the shares of common stock and the ability of
any person or entity to engage in market-making activities with
respect to the shares of common stock.
We will pay all expenses of the registration of the shares of
common stock pursuant to the registration rights agreement,
estimated to be $463,859 in total, including, without
limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or blue
sky laws; provided, however, that a selling stockholder
will pay all underwriting discounts and selling commissions, if
any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities
Act, in accordance with the registration rights agreements, or
the selling stockholders will be entitled to contribution. We
may be indemnified by the selling stockholders against civil
liabilities, including liabilities under the Securities Act,
that may arise from any written information furnished to us by
the selling stockholder
81
specifically for use in this prospectus, in accordance with the
related registration rights agreement, or we may be entitled to
contribution.
Once sold under this registration statement, of which this
prospectus forms a part, the shares of common stock will be
freely tradable in the hands of persons other than our
affiliates.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
The following summary description of our capital stock does not
purport to be complete and is qualified in its entirety by
reference to our certificate of incorporation and bylaws, copies
of which are attached as Exhibit 3.2 and Exhibit 3.3
to this registration statement, respectively.
Our authorized capital stock consists of 400,000,000 shares
of common stock, par value $0.001 per share, of which
114,015,063 shares are issued and outstanding. Holders of
our common stock are entitled to one vote per share on all
matters on which holders of common stock are entitled to vote.
Because holders of our common stock do not have cumulative
voting rights, the holders of a majority of the shares of our
common stock represented at a meeting for the election of
directors can elect all of the directors.
Holders of our common stock have equal ratable rights to
dividends from funds legally available if and when declared by
our board of directors and are entitled to share ratably in all
of our assets available for distribution to holders of our
common stock upon liquidation, dissolution or winding up of our
affairs. Holders of our common stock do not have subscription
rights, conversion rights, or preemptive rights with respect to
any additional shares of common stock that may be issued.
Therefore, we may sell shares of common stock without first
offering such shares to existing stockholders. All outstanding
shares of our common stock are fully paid and nonassessable.
Holders of our common stock are not entitled to take action by
written consent or to call special meetings of our stockholders.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
None.
LEGAL
MATTERS
The validity of the shares of common stock offered through this
prospectus is passed on by Akerman Senterfitt.
EXPERTS
The consolidated financial statements of Swisher Hygiene Inc. at
and for the three years ended December 31, 2009 included in
this prospectus, to the extent and for the periods indicated in
their report, have been audited by Scharf Pera & Co.,
PLLC, independent registered public accountants, and are
included herein in reliance upon the authority of such firm as
experts in accounting and auditing in giving such report.
The consolidated financial statements of CoolBrands
International, Inc. as of August 31, 2010 and 2009 and for
each of the three years in the period ended August 31,
2010, included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of such firm as experts in auditing and accounting.
HOW TO
GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a
Registration Statement on Form 10 (the
Form 10). When the Form 10 is declared
effective, we will be subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the
Exchange Act), and the rules and regulations
thereunder.
82
As such, we will file reports, proxy statements, information
statements, and other information with the Securities and
Exchange Commission (SEC).
We have filed with the SEC a Registration Statement on
Form S-1
under the Securities Act to register with the SEC the securities
described herein. This prospectus, which is a part of the
registration statement, does not contain all of the information
set forth in the registration statement. For further information
about us and our securities, you should refer to the
registration statement. You may read and, for a fee, copy this
information at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for more information on its Public Reference Rooms. Our SEC and
other public filings will also be available to the public from
commercial document retrieval services, and at the web site
maintained by the SEC at
http://www.sec.gov
and on the System for Electronic Document Analysis Retrieval
(SEDAR) website at
http://www.sedar.com.
Our Internet address is www.swisherhygiene.com. We will
make available through a link to the SECs web site,
electronic copies of the materials we file with the SEC
(including our annual reports on
Form 10-K,
our quarterly reports on
Form 10-Q,
our current reports on
Form 8-K,
the Section 16 reports filed by our executive officers,
directors, and 10% stockholders and amendments to those reports)
and electronic copies of the materials we file with Canadian
Securities Regulators through a link to SEDAR. To receive paper
copies of our SEC materials, please contact us by mail addressed
to Swisher Hygiene Inc., Investor Relations, 4725 Piedmont Row
Drive, Suite 400, Charlotte, North Carolina 28210.
You should rely only on the information contained in this
prospectus. We have not authorized any person to provide you
with any information that is different.
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
Swisher
|
|
|
CoolBrands
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene
|
|
|
International
|
|
|
Pro Forma
|
|
|
|
|
|
Consolidated
|
|
|
|
Inc.
|
|
|
Inc.
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short term investments
|
|
$
|
644
|
|
|
$
|
60,653
|
|
|
$
|
(950
|
)
|
|
|
b
|
|
|
$
|
60,347
|
|
Accounts receivable
|
|
|
5,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,786
|
|
Inventory
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,227
|
|
Notes receivable
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
c
|
|
|
|
88
|
|
Other current assets
|
|
|
195
|
|
|
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,915
|
|
|
|
61,979
|
|
|
|
(862
|
)
|
|
|
|
|
|
|
70,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
20,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,001
|
|
Customer relationships
|
|
|
3,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,029
|
|
Non-compete agreements
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,008
|
|
Other intangible assets
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
Notes receivable
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712
|
|
Other noncurrent assets
|
|
|
779
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
25,693
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
26,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,038
|
|
|
$
|
62,324
|
|
|
$
|
(862
|
)
|
|
|
|
|
|
$
|
105,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,074
|
|
|
$
|
693
|
|
|
$
|
|
|
|
|
|
|
|
$
|
7,767
|
|
Accrued expenses and other current liabilities
|
|
|
4,749
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
b
|
|
|
|
4,049
|
|
Current liabilities from discontinued operations
|
|
|
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
1,950
|
|
Advances from shareholders
|
|
|
22,395
|
|
|
|
|
|
|
|
(22,395
|
)
|
|
|
b
|
|
|
|
|
|
Long-term debt current
|
|
|
27,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
61,929
|
|
|
|
2,643
|
|
|
|
(23,095
|
)
|
|
|
|
|
|
|
41,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities non current
|
|
|
6,837
|
|
|
|
2,747
|
|
|
|
|
|
|
|
|
|
|
|
9,584
|
|
Advances from shareholder
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
867
|
|
|
|
c
|
|
|
|
867
|
|
Deferred revenue less current
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
8,962
|
|
|
|
2,747
|
|
|
|
867
|
|
|
|
|
|
|
|
12,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
58
|
|
|
|
130,789
|
|
|
|
(130,733
|
)
|
|
|
a
|
|
|
|
114
|
|
Additional paid-in capital
|
|
|
27,488
|
|
|
|
50,798
|
|
|
|
28,225
|
|
|
|
b
|
|
|
|
106,511
|
|
Other comprehensive income
|
|
|
|
|
|
|
(43,544
|
)
|
|
|
43,544
|
|
|
|
b
|
|
|
|
|
|
Accumulated deficit
|
|
|
(54,508
|
)
|
|
|
(81,109
|
)
|
|
|
80,330
|
|
|
|
b c
|
|
|
|
(55,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swisher Hygiene Inc. stockholders equity
|
|
|
(26,962
|
)
|
|
|
56,934
|
|
|
|
21,366
|
|
|
|
|
|
|
|
51,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,038
|
|
|
$
|
62,324
|
|
|
$
|
(862
|
)
|
|
|
|
|
|
$
|
105,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PF-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
Swisher
|
|
|
CoolBrands
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene
|
|
|
International
|
|
|
Pro Forma
|
|
|
|
|
|
Consolidated
|
|
|
|
Inc.
|
|
|
Inc.
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
$
|
56,815
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
56,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
22,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,305
|
|
Route expenses
|
|
|
12,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,520
|
|
Selling, general and administrative
|
|
|
24,060
|
|
|
|
1,198
|
|
|
|
|
|
|
|
|
|
|
|
25,258
|
|
Depreciation and amortization
|
|
|
4,744
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
4,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
63,629
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
64,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,814
|
)
|
|
|
(1,255
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
55
|
|
|
|
913
|
|
|
|
|
|
|
|
|
|
|
|
968
|
|
Interest expense
|
|
|
(1,064
|
)
|
|
|
|
|
|
|
185
|
|
|
|
b
|
|
|
|
(879
|
)
|
Loss on foreign currency
|
|
|
|
|
|
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
(739
|
)
|
Forgiveness of debt
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
Gain from bargain purchase
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Impairment loss
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(445
|
)
|
|
|
174
|
|
|
|
185
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income from Continuing Operations Before Income
Tax
|
|
|
(7,259
|
)
|
|
|
(1,081
|
)
|
|
|
185
|
|
|
|
|
|
|
|
(8,155
|
)
|
Income Tax (Benefit) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from Continuing Operations Attributable to
Non-controlling Interest
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Continuing Operations Attributable to Swisher
Hygiene Inc.
|
|
|
(7,261
|
)
|
|
|
(1,081
|
)
|
|
|
185
|
|
|
|
|
|
|
|
(8,157
|
)
|
Change in Accrued Benefit Cost of Defined Benefit Plan
|
|
|
|
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(7,261
|
)
|
|
$
|
(1,365
|
)
|
|
$
|
185
|
|
|
|
|
|
|
$
|
(8,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common Shares Used in the Computation of
Loss per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,865,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PF-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
Swisher
|
|
|
CoolBrands
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene
|
|
|
International
|
|
|
Pro Forma
|
|
|
|
|
|
Consolidated
|
|
|
|
Inc.
|
|
|
Inc.
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
$
|
45,954
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
45,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
16,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,870
|
|
Route expenses
|
|
|
9,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,861
|
|
Selling, general and administrative
|
|
|
22,321
|
|
|
|
1,349
|
|
|
|
(1,655
|
)
|
|
|
d
|
|
|
|
22,015
|
|
Depreciation and amortization
|
|
|
3,399
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
3,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
52,451
|
|
|
|
1,387
|
|
|
|
(1,655
|
)
|
|
|
|
|
|
|
52,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,497
|
)
|
|
|
(1,387
|
)
|
|
|
1,655
|
|
|
|
|
|
|
|
(6,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
50
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
432
|
|
Interest expense
|
|
|
(1,053
|
)
|
|
|
|
|
|
|
351
|
|
|
|
b
|
|
|
|
(702
|
)
|
Gain on sale of property
|
|
|
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
997
|
|
Reduction in accrued post retirement benefits
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
559
|
|
Gain on foreign currency
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(1,003
|
)
|
|
|
2,054
|
|
|
|
351
|
|
|
|
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income from Continuing Operations Before Income
Tax
|
|
|
(7,500
|
)
|
|
|
667
|
|
|
|
2,006
|
|
|
|
|
|
|
|
(4,827
|
)
|
Income Tax (Benefit) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from Continuing Operations Attributable to
Non-controlling Interest
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income from Continuing Operations Attributable to
Swisher Hygiene Inc.
|
|
|
(7,507
|
)
|
|
|
667
|
|
|
|
2,006
|
|
|
|
|
|
|
$
|
(4,834
|
)
|
Change in Accrued Benefit Cost of Defined Benefit Plan
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(7,507
|
)
|
|
$
|
309
|
|
|
$
|
2,006
|
|
|
|
|
|
|
$
|
(5,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common Shares Used in the Computation of
Loss per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,952,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PF-4
|
|
1.
|
Basis of
presentation:
|
On August 17, 2010, Swisher International, Inc.
(Swisher International or the Company)
entered into a merger agreement (the Merger
Agreement) under which all of the outstanding common
shares of Swisher International were to be exchanged for
57,789,630 common shares of CoolBrands International Inc.
(CoolBrands), such that the Company would become a
wholly-owned subsidiary of CoolBrands (the Merger).
Immediately prior to signing the Merger Agreement, CoolBrands
had 56,185,433 shares outstanding, which remain
outstanding. Immediately before the Merger, CoolBrands completed
its Redomestication to Delaware from Ontario, Canada and became
Swisher Hygiene Inc. (Swisher Hygiene). On
November 2, 2010, the Company completed the Merger and
became a wholly-owned subsidiary of Swisher Hygiene. In the
Merger, the former stockholders of Swisher International, Inc.
received 57,789,630 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 48% ownership interest
in Swisher Hygiene. The stockholders of CoolBrands retained 52%
of the company. The share exchange will be accounted for under
SEC reporting rules (Financial Reporting Manual Topic
12) constituting a reverse acquisition and is considered to
be a capital transaction, in substance, rather than a business
combination. The transaction is effectively a reverse
recapitalization equivalent to the issuance of stock by a
private company for the net monetary assets of the non-operating
corporation accompanied by the recapitalization. Accordingly,
the accounting for the share exchange will be similar to that
resulting from a reverse acquisition; except that the
transaction will be consummated at book value and no goodwill or
intangible assets will be recognized. In accordance with SEC
Staff Accounting Bulletin Topic 4, the accompanying
financial statements of Swisher International have been adjusted
to give retroactive effect for the change in reporting entity
from Swisher International, Inc. to Swisher Hygiene Inc., and to
reflect the change in capital structure as a result of the
Merger. Such change resulted in an increase in the number of
authorized shares from 15,000,000 to 400,000,000 and an increase
in common stock and corresponding decrease in additional
paid-in-capital
of $45,661 as of December 31, 2009 and September 30,
2010. These unaudited pro forma consolidated financial
statements have been prepared to give effect to the Merger
Agreement between Swisher International and Swisher Hygiene and
have been prepared in accordance with U.S. GAAP.
These unaudited pro forma consolidated financial statements have
been compiled from and include:
|
|
|
|
(a)
|
An unaudited pro forma consolidated balance sheet combining the
unaudited consolidated balance sheet of Swisher Hygiene as of
September 30, 2010 with the unaudited consolidated balance
sheet of CoolBrands as of August 31, 2010 (which is the
balance sheet of CoolBrands for the fiscal quarter that ends
closest to September 30, 2010), giving effect to the
transaction as if it occurred on September 30, 2010.
|
|
|
|
|
(b)
|
An unaudited pro forma consolidated statement of operations
combining the audited consolidated statement of operations of
Swisher Hygiene for the year ended December 31, 2009 with
the unaudited constructed statement of operations of CoolBrands
for the twelve months ended November 30, 2009 (which is the
twelve month period of CoolBrands for the fiscal quarter that
ends closest to December 31, 2009), giving effect to the
transaction as if it occurred on January 1, 2009. The
CoolBrands statement of operations for the twelve months
ended November 30, 2009 has been constructed by adding
together (a) the audited results of CoolBrands for the
fiscal year ended August 31, 2009 and (b) the
unaudited interim results for the three months ended
November 30, 2009; then deducting the unaudited interim
results for the three months ended November 30, 2008.
|
|
|
|
|
(c)
|
An unaudited pro forma consolidated statement of operations
combining the unaudited consolidated statement of operations of
Swisher Hygiene for the nine months ended September 30,
2010 with the unaudited constructed statement of operations of
CoolBrands for the nine months ended August 31, 2010 (which
is the nine month period of CoolBrands for the fiscal quarter
that ends closest to
|
PF-5
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
September 30, 2010), giving effect to the transaction as if
it occurred on January 1, 2009. The CoolBrands
statement of operations for the nine months ended
August 31, 2010 has been constructed by deducting the
unaudited interim results for the three months ended
November 30, 2009 from the audited results for the year
ended August 31, 2010.
|
The unaudited pro forma consolidated financial statements have
been compiled using the significant accounting policies as set
out in the audited financial statements of the Company for the
year ended December 31, 2009 which are included elsewhere
in this document. The unaudited pro forma consolidated financial
statements should be read in conjunction with the historical
financial statements and notes thereto. It is managements
opinion that the effect of the different year ends of the
companies is immaterial.
CoolBrands prepares its financial statements in Canadian
dollars. CoolBrands financial statements have been
converted, using the current rate method, from Canadian dollars
to U.S. dollars at the rates described in the following
table.
|
|
|
|
|
As at August 31, 2010
|
|
$
|
0.9377
|
|
Average for the nine months ended August 31, 2010
|
|
$
|
0.9632
|
|
Average for the twelve months ended November 30, 2009
|
|
$
|
0.8646
|
|
Management of the Company has reclassified certain line items
from CoolBrands financial statements in an attempt to
conform to the presentation of the Companys financial
statements. It is managements opinion that these unaudited
pro forma consolidated financial statements include all
adjustments necessary for the fair presentation of the
transaction described above in accordance with U.S. GAAP.
The unaudited pro forma consolidated financial statements are
not intended to reflect the results of operations or the
financial position of the Company which would have actually
resulted had the proposed transaction been effected on the dates
indicated. Further, the unaudited pro forma financial
information is not necessarily indicative of the results of
operations that may be obtained in the future. In addition, the
impact of integration activities, the timing of completion of
the acquisition and other changes in CoolBrands net assets
prior to the completion of the acquisition, which have not been
incorporated into these unaudited pro forma consolidated
financial statements, could cause material differences in the
information presented.
|
|
2.
|
Pro forma
adjustments (a, b, c, d as referenced in the financial
statements):
|
The adjustments included in the Unaudited Pro forma Consolidated
Financial Statements are those that are considered to be
directly attributable to the Merger and that provide information
as to how the combined historical financial statements may have
been affected had those events occurred as of September 30,
2010, and at the beginning of the twelve and nine month periods
ended December 31, 2009 and September 30, 2010,
respectively. These adjustments are summarized below:
|
|
|
|
|
|
|
Note
|
|
|
|
|
|
Ref.
|
|
Description
|
|
Amount
|
|
|
(a)
|
|
Change in capital structure
|
|
$
|
(130,733
|
)
|
(b)
|
|
Change in additional paid-in-capital
|
|
|
28,225
|
|
(b)
|
|
Elimination of CoolBrands accumulated deficit and other
comprehensive loss
|
|
|
124,653
|
|
(c)
|
|
Tax adjustments
|
|
|
(779
|
)
|
|
|
|
|
|
|
|
|
|
Net effect on stockholders equity
|
|
$
|
21,366
|
|
|
|
|
|
|
|
|
PF-6
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(a)
|
Change in
Capital Structure
|
Prior to the Redomestication described in Note 1, the
common stock of CoolBrands had no par value. This adjustment
restates the capital structure to reflect the $.001 par
value of the common stock of Swisher Hygiene Inc. after the
Redomestication.
|
|
(b)
|
Change in
Additional Paid-in Capital
|
In addition to the change in capital structure described in
Note 2-(a)
above, pursuant to the Merger, shareholders of Swisher Hygiene
converted $21,445 of debt plus accrued interest of $700 to
equity and $950 of advances from shareholders will be repaid.
Secondly, in accordance with Financial Reporting Manual Topic
12 as described above, Swisher Hygiene has been deemed the
accounting acquirer. Therefore, the accumulated deficit of
CoolBrands has been reclassified to additional
paid-in-capital.
The following table summarizes the changes in additional
paid-in-capital:
|
|
|
|
|
Change in capital structure
|
|
$
|
130,733
|
|
Conversion of debt and interest
|
|
|
22,145
|
|
Elimination of CoolBrands accumulated other comprehensive loss
|
|
|
(43,544
|
)
|
Elimination of CoolBrands accumulated deficit
|
|
|
(81,109
|
)
|
|
|
|
|
|
Net effect on additional
paid-in-capital
|
|
$
|
28,225
|
|
|
|
|
|
|
In addition to the conversion of debt and interest to equity,
pro forma adjustments have been made to eliminate $185 of
interest expense on these advances for the year ended
December 31, 2009 and $351 for the nine months ended
September 30, 2010 since these expenses would not have been
incurred had the Merger occurred on January 1, 2009.
As a result of the Merger, Swisher Hygiene will be converting
from a corporation taxed under the provisions of Subchapter S of
the Internal Revenue Code to a tax-paying entity. As a result,
the cumulative timing differences between book income and
taxable income will be recorded as of the merger date. A full
valuation allowance has been provided against the deferred tax
benefit attributable to the net loss from operations.
Accordingly, there is no recovery of income taxes provided for
in these unaudited pro forma consolidated financial statements.
|
|
(d)
|
Merger
related expenses
|
Swisher Hygiene and CoolBrands incurred direct incremental costs
related to the Merger of $1,426 and $230, respectively, which
has been removed from the pro forma income statement as a
non-recurring charge directly related to the transaction.
PF-7
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
SWISHER HYGIENE INC. AND SUBSIDIARIES
|
|
|
|
|
Consolidated Financial Statements As of December 31,
2009 and 2008, and for the Three Years Ended December 31,
2009
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Consolidated Financial Statements As of September 30,
2010 and December 31, 2009, and for the Three and Nine
Month Periods Ended September 30, 2010 and 2009
|
|
|
|
|
|
|
|
F-22
|
|
|
|
|
F-23
|
|
|
|
|
F-24
|
|
|
|
|
F-25
|
|
|
|
|
F-26
|
|
|
|
|
F-27
|
|
COOLBRANDS INTERNATIONAL, INC.
|
|
|
|
|
Consolidated Financial Statements As of August 31, 2010
and 2009
|
|
|
|
|
|
|
|
F-30
|
|
|
|
|
F-31
|
|
|
|
|
F-32
|
|
|
|
|
F-33
|
|
|
|
|
F-34
|
|
|
|
|
F-35
|
|
F-1
Board of Directors
Swisher Hygiene Inc. and Subsidiaries
Charlotte, North Carolina
INDEPENDENT
AUDITORS REPORT
We have audited the accompanying consolidated balance sheets of
Swisher Hygiene Inc. and Subsidiaries as of December 31,
2009 and 2008, and the related consolidated statements of
operations and comprehensive loss, stockholders deficit
and accumulated other comprehensive loss, and cash flows for
each of the three years ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (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. Swisher Hygiene Inc. and
Subsidiaries is not required to have, nor were we engaged to
perform, an audit of its internal controls over financial
reporting. Our audits included consideration of internal
controls over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purposes of expressing an opinion on the effectiveness
of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Swisher Hygiene Inc. and Subsidiaries as of
December 31, 2009 and 2008, and the results of its
operations and its cash flows for each of the three years ended
December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Scharf
Pera & Co., PLLC
Charlotte, North Carolina
November 2, 2010
F-2
SWISHER
HYGIENE INC. AND SUBSIDIARIES
DECEMBER
31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents Note 2
|
|
$
|
1,270,327
|
|
|
$
|
341,722
|
|
Accounts receivable, net of allowance Note 2
|
|
|
4,954,010
|
|
|
|
5,584,732
|
|
Inventory
|
|
|
1,295,784
|
|
|
|
1,085,427
|
|
Notes receivable Note 4
|
|
|
54,674
|
|
|
|
85,295
|
|
Prepaid expenses
|
|
|
187,419
|
|
|
|
211,108
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,762,214
|
|
|
|
7,308,284
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net Note 5
|
|
|
7,859,482
|
|
|
|
6,650,816
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill Note 6
|
|
|
18,353,489
|
|
|
|
13,668,316
|
|
Customer relationships Note 6
|
|
|
2,766,016
|
|
|
|
1,744,981
|
|
Non-compete agreements Note 6
|
|
|
814,442
|
|
|
|
631,070
|
|
Notes receivable Note 4
|
|
|
731,921
|
|
|
|
|
|
Other noncurrent assets Note 12
|
|
|
630,375
|
|
|
|
277,491
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
23,296,243
|
|
|
|
16,321,858
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,917,939
|
|
|
$
|
30,280,958
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,604,266
|
|
|
$
|
5,933,099
|
|
Accrued expenses and other current liabilities
Note 12
|
|
|
2,584,852
|
|
|
|
4,081,118
|
|
Long-term debt, current portion Note 7
|
|
|
2,295,290
|
|
|
|
26,224,182
|
|
Advances from shareholder Note 8
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,284,408
|
|
|
|
36,238,399
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion Note 7
|
|
|
32,029,841
|
|
|
|
1,343,346
|
|
Advances from shareholder Note 8
|
|
|
16,845,000
|
|
|
|
5,000,000
|
|
Deferred revenue, less current portion Note 4
|
|
|
112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
48,986,841
|
|
|
|
6,343,346
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies Notes 9, 13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit Note 13
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, authorized
400,000,000 shares; 57,789,630 shares issued and
outstanding at December 31, 2009 and 2008
|
|
|
57,790
|
|
|
|
57,790
|
|
Additional paid-in capital
|
|
|
27,487,740
|
|
|
|
27,602,740
|
|
Accumulated deficit
|
|
|
(47,000,736
|
)
|
|
|
(39,739,851
|
)
|
Accumulated other comprehensive loss Note 4
|
|
|
|
|
|
|
(221,466
|
)
|
|
|
|
|
|
|
|
|
|
Total Swisher Hygiene Inc. stockholders deficit
|
|
|
(19,455,206
|
)
|
|
|
(12,300,787
|
)
|
Non-controlling interest
|
|
|
101,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deficit
|
|
|
(19,353,310
|
)
|
|
|
(12,300,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,917,939
|
|
|
$
|
30,280,958
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-3
SWISHER
HYGIENE INC. AND SUBSIDIARIES
FOR THE
THREE YEARS ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service
|
|
$
|
43,890,697
|
|
|
$
|
45,831,483
|
|
|
$
|
45,026,463
|
|
Franchise and other
|
|
|
12,923,327
|
|
|
|
18,277,408
|
|
|
|
20,163,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
56,814,024
|
|
|
|
64,108,891
|
|
|
|
65,190,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
22,304,515
|
|
|
|
25,071,410
|
|
|
|
25,859,043
|
|
Route expenses
|
|
|
12,519,891
|
|
|
|
14,201,243
|
|
|
|
15,073,727
|
|
Selling, general and administrative
|
|
|
24,060,048
|
|
|
|
30,112,150
|
|
|
|
29,115,436
|
|
Depreciation and amortization
|
|
|
4,744,052
|
|
|
|
5,206,632
|
|
|
|
4,413,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
63,628,506
|
|
|
|
74,591,435
|
|
|
|
74,461,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,814,482
|
)
|
|
|
(10,482,544
|
)
|
|
|
(9,271,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
54,797
|
|
|
|
10,337
|
|
|
|
56,013
|
|
Interest expense
|
|
|
(1,063,411
|
)
|
|
|
(1,292,664
|
)
|
|
|
(1,256,512
|
)
|
Forgiveness of debt
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Gain from bargain purchases
|
|
|
94,107
|
|
|
|
|
|
|
|
|
|
Impairment losses
|
|
|
(30,000
|
)
|
|
|
(223,000
|
)
|
|
|
(131,000
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
34,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(444,507
|
)
|
|
|
(1,505,327
|
)
|
|
|
(1,296,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(7,258,989
|
)
|
|
|
(11,987,871
|
)
|
|
|
(10,568,357
|
)
|
Net (Income) Loss Attributable to Noncontrolling Interest
|
|
|
(1,896
|
)
|
|
|
17,014
|
|
|
|
25,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Swisher Hygiene Inc.
|
|
|
(7,260,885
|
)
|
|
|
(11,970,857
|
)
|
|
|
(10,543,271
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(195,446
|
)
|
|
|
(26,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(7,260,885
|
)
|
|
$
|
(12,166,303
|
)
|
|
$
|
(10,569,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in the computation of
earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
57,789,630
|
|
|
|
57,789,630
|
|
|
|
57,789,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Non-controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Interest
|
|
|
Total
|
|
|
Balance as of January 1, 2007
|
|
|
57,789,630
|
|
|
$
|
57,790
|
|
|
$
|
25,380,778
|
|
|
$
|
(17,225,723
|
)
|
|
$
|
|
|
|
$
|
53,942
|
|
|
$
|
8,266,787
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,020
|
)
|
|
|
|
|
|
|
(26,020
|
)
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,543,271
|
)
|
|
|
|
|
|
|
(25,086
|
)
|
|
|
(10,568,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
57,789,630
|
|
|
|
57,790
|
|
|
|
27,880,778
|
|
|
|
(27,768,994
|
)
|
|
|
(26,020
|
)
|
|
|
28,856
|
|
|
|
172,410
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,446
|
)
|
|
|
|
|
|
|
(195,446
|
)
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
461,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461,962
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(740,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,842
|
)
|
|
|
(751,842
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,970,857
|
)
|
|
|
|
|
|
|
(17,014
|
)
|
|
|
(11,987,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
57,789,630
|
|
|
|
57,790
|
|
|
|
27,602,740
|
|
|
|
(39,739,851
|
)
|
|
|
(221,466
|
)
|
|
|
|
|
|
|
(12,300,787
|
)
|
Liquidation of foreign subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,466
|
|
|
|
|
|
|
|
221,466
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(115,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,000
|
)
|
Contribution of equity on acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,260,885
|
)
|
|
|
|
|
|
|
1,896
|
|
|
|
(7,258,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
57,789,630
|
|
|
$
|
57,790
|
|
|
$
|
27,487,740
|
|
|
$
|
(47,000,736
|
)
|
|
$
|
|
|
|
$
|
101,896
|
|
|
$
|
(19,353,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-5
SWISHER
HYGIENE INC. AND SUBSIDIARIES
FOR
THE THREE YEARS ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,258,989
|
)
|
|
$
|
(11,987,871
|
)
|
|
$
|
(10,568,357
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,744,052
|
|
|
|
5,206,632
|
|
|
|
4,413,566
|
|
Impairment loss
|
|
|
30,000
|
|
|
|
223,000
|
|
|
|
131,000
|
|
Gain from bargain purchases
|
|
|
(94,107
|
)
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
284,385
|
|
|
|
605,186
|
|
|
|
935,401
|
|
Changes in working capital components:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,278,418
|
|
|
|
603,260
|
|
|
|
(389,779
|
)
|
Inventory
|
|
|
9,553
|
|
|
|
(52,590
|
)
|
|
|
(96,395
|
)
|
Prepaid expenses and other assets
|
|
|
(366,383
|
)
|
|
|
455,657
|
|
|
|
552,303
|
|
Accounts payable and accrued expenses
|
|
|
(4,327,249
|
)
|
|
|
(1,823,712
|
)
|
|
|
1,766,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
(5,700,320
|
)
|
|
|
(6,770,438
|
)
|
|
|
(3,255,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,572,957
|
)
|
|
|
(3,466,343
|
)
|
|
|
(4,056,599
|
)
|
Payments received on notes receivable
|
|
|
19,347
|
|
|
|
27,439
|
|
|
|
105,343
|
|
Acquisitions
|
|
|
(839,023
|
)
|
|
|
(291,000
|
)
|
|
|
(2,079,097
|
)
|
Other
|
|
|
6,978
|
|
|
|
75,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(4,385,655
|
)
|
|
|
(3,654,597
|
)
|
|
|
(6,030,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder contributions
|
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
Distributions to shareholders
|
|
|
(115,000
|
)
|
|
|
(704,000
|
)
|
|
|
|
|
Distributions to noncontrolling shareholder
|
|
|
|
|
|
|
(11,842
|
)
|
|
|
|
|
Proceeds from advances from shareholder
|
|
|
12,645,000
|
|
|
|
5,000,000
|
|
|
|
|
|
Proceeds from line of credit
|
|
|
|
|
|
|
6,296,118
|
|
|
|
7,655,000
|
|
Net principal payments on long-term debt
|
|
|
(1,515,420
|
)
|
|
|
(886,995
|
)
|
|
|
(550,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
11,014,580
|
|
|
|
9,693,281
|
|
|
|
9,604,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
|
|
|
|
(160,611
|
)
|
|
|
(19,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
928,605
|
|
|
|
(892,365
|
)
|
|
|
299,587
|
|
Cash and cash equivalents at beginning of year
|
|
|
341,722
|
|
|
|
1,234,087
|
|
|
|
934,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,270,327
|
|
|
$
|
341,722
|
|
|
$
|
1,234,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-6
SWISHER
HYGIENE INC. AND SUBSIDIARIES
|
|
NOTE 1
|
BUSINESS
DESCRIPTION
|
Swisher International, Inc. and its wholly-owned subsidiaries,
founded in 1986 and headquartered in Charlotte, North Carolina,
and operating under the trade name of
Swisher®,
provides hygiene solutions to customers throughout much of North
America and internationally through its global network of
company owned operations, franchises and master licensees. These
solutions include products and services that are designed to
promote superior cleanliness and sanitation in commercial
environments, enhancing the safety, satisfaction and well-being
of employees and patrons. These solutions are typically
delivered by employees on a regularly scheduled basis and may
involve 1) the sale of certain consumable products such as
chemicals, soap, paper and cleaning supplies, 2) the sale
and/or
rental of equipment for the dispensing of such products as well
as items that require regular maintenance and cleaning such as
floor mats, mops, linens and dish machines, and 3) the
performance of certain manual cleaning processes. Swisher
International, Inc. and Subsidiaries serves customers in a wide
range of end-markets, with a particular emphasis on the
foodservice, hospitality, retail, industrial and healthcare
industries across North America.
Swisher International, Inc. and Subsidiaries is comprised of
60 company owned operations and 15 franchise
operations located throughout the United States and Canada and
has entered into 10 Master License Agreements covering the
United Kingdom, Ireland, Portugal, the Netherlands, Singapore,
the Philippines, Taiwan, Korea, Hong Kong/Macau/China, and
Mexico.
As discussed in Note 13, on November 2, 2010, Swisher
International, Inc. merged with and became a wholly-owned
subsidiary of Swisher Hygiene Inc. In accordance with SEC Staff
Bulletin Topic 4, the accompanying consolidated audited
financial statements have been adjusted to give retroactive
effect for the change in reporting entity from Swisher
International, Inc. to Swisher Hygiene Inc. As such, references
to the Company within the audited consolidated
financial statements refers to the former Swisher International,
Inc. and Subsidiaries.
|
|
NOTE 2
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The accompanying consolidated financial statements include the
accounts of Swisher International, Inc. and all its
subsidiaries, which are wholly-owned and include the historical
financial statements of HB Service, LLC. HB Service, LLC, a
limited liability company related to the Company through common
ownership, has acquired and operated hygiene service businesses
throughout the United States since 2004. Effective July 13,
2010, Swisher International, Inc. entered into a merger
agreement with HB Service, LLC. In accordance with Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC)
805-50-45
Transactions Between Entities Under Common Control,
the financial statements include the operations of HB Service,
LLC as if the merger had occurred on January 1, 2007. All
material intercompany balances and transactions have been
eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue
and expenses and disclosure of contingent assets and liabilities
at the date of the financial statements. Actual results could
differ from those estimates and such differences could affect
the results of operations reported in future periods.
F-7
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
The Company considers all cash accounts and all highly liquid
short-term investments purchased with an original maturity of
three months or less to be cash or cash equivalents. As of
December 31, 2009 and 2008, the Company did not have any
investments with maturities greater than three months.
Accounts
Receivable
Accounts receivable consist of amounts due from customers for
product sales and services as well as from franchisees and
master licensees for product sales, royalties and fees for
marketing and administrative services. Accounts receivable are
reported net of an allowance for doubtful accounts. The
allowance is managements best estimate of uncollectible
amounts and is based on a number of factors, including overall
credit quality, age of outstanding balances, historical
write-off experience and specific account analysis that projects
the ultimate collectability of the outstanding balances. As of
December 31, 2009 and 2008, the allowance was $334,156 and
$564,635, respectively.
Inventory
Inventories consist of purchased items which are sold to
customers and are stated at the lower of cost or market
determined using the first in-first out (FIFO) cost method.
The Company routinely reviews inventory for excess and slow
moving items as well as for damaged or otherwise obsolete items
and for items selling at negative margins. When such items are
identified, a reserve is recorded to adjust their carrying value
to their estimated net realizable value.
Notes
Receivable
Notes receivable consist of amounts due from franchisees and
master licensees. Notes receivable are reported net of an
allowance for doubtful accounts. The allowance is
managements best estimate of uncollectible amounts and is
based on a number of factors including overall franchisee or
master licensee credit quality, historical write-off experience
and specific account analysis that projects the ultimate
collectability of the outstanding balances.
Property
and Equipment, Net
Property and equipment, net is stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization is
provided using the straight-line method over the estimated
useful lives of individual assets or classes of assets as
follows:
|
|
|
Items in service
|
|
2 to 5 years
|
Equipment and furniture
|
|
3 to 10 years
|
Vehicles
|
|
3 years
|
Computer equipment (including leases)
|
|
3 years
|
Computer software
|
|
3 to 7 years
|
Leasehold improvements
|
|
3 to 10 years
|
Items in service consist of various systems that dispense the
Companys cleaning and sanitizing, dish machine and dust
control products. Included in the cost of items in service are
costs incurred to install the equipment of significant customers
with long-term contracts. These costs include labor, parts and
supplies. Costs of significant additions, renewals and
betterments, are capitalized and depreciated. When an asset is
sold or otherwise disposed, the related cost and accumulated
depreciation or amortization are removed from the respective
accounts and the gain or loss is recognized. Maintenance and
repairs are charged to expense when incurred.
F-8
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with ASC 350, the Company capitalizes certain
costs incurred during the application development stage
associated with the development of new software products for
internal use. Research and development costs in the preliminary
project stage are expensed. Internal and external training costs
and maintenance costs in the post-implementation operation stage
are also expensed. Amortization of capitalized software
development costs commences upon the completion of new products.
Amortization is recorded over their estimated useful lives, or
sooner if such costs are determined to be impaired.
Goodwill
and Other Intangible Assets
The cost of acquisitions in excess of the fair value of the
identifiable net assets acquired is recorded as goodwill. Other
intangible assets include customer relationships and non-compete
agreements. The fair value of these intangible assets at the
time of acquisition is estimated based upon discounted future
cash flow projections. The customer relationships are amortized
on a straight-line basis over the expected average life of the
acquired accounts, which is five years based upon a number of
factors, including longevity of customers acquired, historical
retention rates, etc. The non-compete agreements are amortized
on a straight-line basis over the term of the agreements which
are between two to five years.
The Company tests goodwill and other intangible assets for
impairment for all reporting units on an annual basis or when
circumstances change that would more likely than not reduce the
fair value of the reporting unit to an amount that is less than
its carrying amount. This test includes evaluation of operating
performance and discounted cash flow analysis. Management
utilizes the discounted cash flow technique as a means for
estimating fair value. A discounted cash flow analysis requires
making various judgmental assumptions including assumptions
about future cash flows, growth rates and discount rates. The
assumptions about future cash flows and growth rates are based
on the Companys budget and managements forecasts.
Discount rate assumptions are based on an assessment of the risk
inherent in the respective reporting units. As part of this
impairment testing, management also assesses the useful lives
assigned to the customer relationships and non-compete
agreements. For the years ended December 31, 2009, 2008 and
2007, impairment losses on goodwill and other intangible assets
totaled $30,000, $223,000 and $131,000, respectively.
Long-lived
Assets
In accordance with FASB
ASC 360-10-35
Impairment of Disposal of Long-lived Assets, losses
related to the impairment of long-lived assets are recognized
when the carrying amount is not recoverable and exceeds its fair
value. When facts and circumstances indicate that the carrying
values of long-lived assets may be impaired, management of the
Company evaluates recoverability by comparing the carrying value
of the assets to projected future cash flows, in addition to
other qualitative and quantitative analyses. The Company also
performs a periodic assessment of the useful lives assigned to
the intangible assets, as previously discussed.
Noncontrolling
Interest
In the majority of its acquisitions, the Company acquired 100%
of the business; however, in a few instances, the former owner
retained a noncontrolling interest. Profit and loss are
allocated to the noncontrolling interest based on its pro-rata
share.
Revenue
Recognition
Revenue from product sales and services is recognized when
services are performed or the products are delivered to the
customer. Franchise and other revenue include product sales,
royalties and other fees charged to franchisees in accordance
with the terms of their franchise agreements. Royalties and fees
are recognized when earned.
F-9
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has entered into franchise and license agreements
which grant the exclusive rights to develop and operate within
specified geographic territories for a fee. The initial
franchise or license fee is deferred and recognized as revenue
when substantially all significant services to be provided by
the Company are performed. Direct incremental costs related to
franchise or license sales for which revenue has not been
recognized is deferred until the related revenue is recognized.
Income
Taxes
Effective on January 1, 2007, the companys
shareholders elected that the corporation be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986,
as amended (the Code). Under this provision, the
shareholders were taxed on their proportionate share of the
companys taxable income. As a Subchapter
S corporation, the company bore no liability or expense for
income taxes. For state income tax purposes, the company has net
operating losses of approximately $2,247,000, which begin to
expire in 2017. However, they may only be utilized if the
company revokes its Subchapter S corporation status.
HB Service, LLC is a limited liability company and has
elected to be taxed under the partnership provisions of the
Internal Revenue Code. Under these provisions, the members are
taxed on the limited liability companys taxable income.
The company bears no liability or expense for income taxes and
none is reflected in these financial statements. As a result of
the merger, the companys Subchapter S election
terminated, and the company became a C corporation.
FASB
ASC 740-10,
Income Taxes, clarifies the accounting for income
taxes, by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the
balance sheet. It also provides guidance on derecognition,
measurement and classification of amounts related to uncertain
tax positions, accounting for and disclosure of interest and
penalties, accounting in interim period disclosures and
transition relating to the adoption of new accounting standards.
Under FASB
ASC 740-10,
the recognition for uncertain tax positions should be based on a
more likely than not threshold that the tax position will be
sustained upon audit. The tax position is measured as the
largest amount of benefit that has a greater than fifty percent
probability of being realized upon settlement. Management has
determined that adoption of this topic has had no effect on the
Companys balance sheet.
The Company includes interest and penalties accrued in
accordance with
ASC 740-10
in the consolidated financial statements as a component of
interest expenses. No significant amounts were required to be
recorded as of December 31, 2009, 2008 and 2007. As of
December 31, 2009, tax years of 2007 through 2009 remain
open to inspection by the Internal Revenue Service.
Foreign
Currency Translation
Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. The effect of exchange rate
fluctuations on translation of assets and liabilities at the
balance sheet date are recorded as a component of
stockholders deficit and accumulated other comprehensive
loss. Amounts transferred from accumulated other comprehensive
loss upon the sale or liquidation of an investment in a foreign
entity is reported as part of the gain or loss on sale or
liquidation. Results of operations for foreign operations are
translated using the average exchange rates throughout the
period.
Fair
Value of Financial Instruments
At December 31, 2009 and 2008, the Company did not have any
outstanding financial derivative instruments. The carrying
amounts of cash and the current portion of accounts and notes
receivable approximate fair value due to the short maturity of
these instruments. The non-current notes receivable are
presented at fair value due to rates generally being at current
market rates. The fair value of the Companys
F-10
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
long-term debt, estimated based on the current borrowing rates
available to the Company for bank loans with similar terms and
maturities, approximates the carrying value of these liabilities.
Loss
per Share
Basic and diluted loss per share was computed by dividing net
loss less noncontrolling interest by the weighted average number
of common shares outstanding during the respective year.
Reclassifications
The consolidated financial statements for the prior years may
contain certain reclassifications to conform to the current year
presentation.
Recent
Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles
(SFAS 168). SFAS 168 establishes the FASB
Accounting Standards Codification (Codification) as
the single source of authoritative GAAP to be applied by
nongovernmental entities, except for the rules and interpretive
releases of the SEC under authority of federal securities laws,
which are sources of authoritative GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of
authority. The Codification does not change GAAP. Instead, it
takes the thousands of individual pronouncements that currently
comprise GAAP and reorganizes them into approximately 90
accounting Topics, and displays all Topics using a consistent
structure. Contents in each Topic are further organized first by
Subtopic, then Section and finally Paragraph. The Paragraph
level is the only level that contains substantive content.
Citing particular content in the Codification involves
specifying the unique numeric path to the content through the
Topic, Subtopic, Section and Paragraph structure. FASB suggests
that all citations begin with FASB ASC, where ASC
stands for Accounting Standards Codification. SFAS 168, now
included within FASB ASC 105, Generally Accepted
Accounting Principles, is effective for interim and annual
periods ending after September 15, 2009. The adoption of
FASB ASC 105 did not have an impact on the Companys
results of operations and financial position, but changes the
referencing system for accounting standards.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation
No. 46(R), now included in FASB ASC 810
Consolidation. FASB ASC 810 amends the
evaluation criteria to identify the primary beneficiary of a
variable interest entity and requires ongoing reassessment of
whether an enterprise is the primary beneficiary of the variable
interest entity. FASB ASC 810 is effective for fiscal years
beginning after November 15, 2009, and interim periods
within those years. The Company does not expect the adoption of
FASB ASC 810 to have a material impact on its results of
operations and financial position.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets, an
Amendment of FASB Statement No. 140, now included
in FASB ASC 860, Transfers and
Servicing. FASB ASC 860 amends the derecognition
guidance in FASB Statement No. 140 and eliminates the
exemption from consolidation for qualifying special-purpose
entities. FASB ASC 860 is effective for fiscal years
beginning after November 15, 2009, and interim periods
within those years. The Company does not expect the adoption of
FASB ASC 860 to have a material impact on its results of
operations and financial position.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, now referred to as FASB
ASC 855 Subsequent Events. FASB
ASC 855 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date,
but before the financial statements are issued or are available
to be issued. FASB ASC 855 requires the disclosure of the
date through which an entity has evaluated subsequent events and
the basis for that date. This disclosure is intended to alert
all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of
financial statements being presented.
F-11
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FASB ASC 855 is effective on a prospective basis for
interim or annual periods ending after June 15, 2009. The
adoption of FASB ASC 855 did not have an impact on the
Companys results of operations and financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, now included within FASB ASC 815,
Derivatives and Hedging. FASB ASC 815
requires companies with derivative instruments to disclose
information that should enable financial statement users to
understand how and why a company uses derivative instruments,
how derivative instruments and related hedged items are
accounted for under FASB ASC 815 and how derivative
instruments and related hedged items affect a companys
financial position, financial performance and cash flows. FASB
ASC 815 is effective for financial statements issued for
fiscal years beginning after November 15, 2008. The
adoption of FASB ASC 815 did not have an impact on the
Companys results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, now included within FASB ASC 810.
FASB ASC 810 establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income (loss)
attributable to the parent and to the noncontrolling interest,
changes in a parents ownership interest and the valuation
of retained noncontrolling equity investments when a subsidiary
is deconsolidated. FASB ASC 810 also establishes reporting
requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. The adoption of FASB
ASC 810 did not have an impact on the Companys
results of operations or financial position.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, now included within
FASB ASC 805 Business Combinations. FASB
ASC 805 establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. FASB ASC 805 also establishes disclosure requirements
which will enable users to evaluate the nature and financial
effects of the business combination. This standard is effective
for fiscal years beginning after December 15, 2008 and
adoption of FASB ASC 805 did not have a significant impact
on the Companys results of operations or financial
position.
For the three years ended December 31, 2009, the Company
acquired 23 of its Franchises, the license rights to the United
Kingdom and two businesses owned by unrelated parties. The
results of operations of these acquisitions have been included
in the Companys consolidated financial statements since
their respective acquisition dates. None of these acquisitions
were significant in relation to the Companys consolidated
financial results and therefore pro forma financial information
is not presented.
F-12
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the aggregate fair values of the
assets acquired and liabilities assumed at the date of
acquisition for acquisitions made during the three years ended
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Number of businesses acquired
|
|
|
19
|
|
|
|
1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
932,083
|
|
|
$
|
61,000
|
|
|
$
|
772,066
|
|
Inventory
|
|
|
219,910
|
|
|
|
1,000
|
|
|
|
122,300
|
|
Property and equipment
|
|
|
676,548
|
|
|
|
18,879
|
|
|
|
197,012
|
|
Other assets
|
|
|
3,860
|
|
|
|
|
|
|
|
1,275
|
|
Accounts payable and accrued expenses
|
|
|
(808,111
|
)
|
|
|
|
|
|
|
(969,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,024,290
|
|
|
|
80,879
|
|
|
|
123,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
2,210,000
|
|
|
|
128,000
|
|
|
|
607,000
|
|
Non-compete agreements
|
|
|
750,000
|
|
|
|
|
|
|
|
118,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,960,000
|
|
|
|
128,000
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill net of bargain purchases
|
|
|
4,909,038
|
|
|
|
322,121
|
|
|
|
2,652,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate purchase price
|
|
|
8,893,328
|
|
|
|
531,000
|
|
|
|
3,500,614
|
|
Less: Noncontrolling interest
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
Less: Notes issued on acquisition
|
|
|
7,954,305
|
|
|
|
240,000
|
|
|
|
1,421,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid on acquisitions
|
|
$
|
839,023
|
|
|
$
|
291,000
|
|
|
$
|
2,079,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets acquired consist of accounts receivable,
inventory, and property and equipment. Liabilities assumed are
accounts payable and other accrued expenses. For the year ended
December 31, 2009, bargain purchases totaled $94,107 which
are included in other income in the accompanying consolidated
statement of operations and comprehensive loss.
|
|
NOTE 4
|
NOTES RECEIVABLE
|
Notes receivable represent franchisee and master licenses as of
December 31, 2009 and 2008 and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Note receivable:
|
|
|
|
|
|
|
|
|
Franchisee
|
|
$
|
|
|
|
$
|
85,295
|
|
Master license Australia and New Zealand
|
|
|
357,261
|
|
|
|
357,261
|
|
Master license United Kingdom
|
|
|
786,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,143,856
|
|
|
|
442,556
|
|
Less: allowance for doubtful accounts
|
|
|
(357,261
|
)
|
|
|
(357,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
786,595
|
|
|
|
85,295
|
|
Less: current portion
|
|
|
(54,674
|
)
|
|
|
(85,295
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
731,921
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-13
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The note due from a franchisee bore interest of 2.75% over the
30-Day LIBOR
rate. During 2009, this franchisee was acquired by the Company
and the debt was part of the consideration.
As a result of a default in 2007 by the Australia and New
Zealand master licensee and the uncertainty that the amount will
ultimately be collected, an allowance has been provided for the
entire amount due.
In January 2009, the Company entered into a UK Master License
Agreement and sold certain assets of its UK subsidiary to an
unrelated third party (the UK Master Licensee). The
purchase price for the Master License was $137,650, which is
payable in monthly installments through 2014 with interest at
6%. The purchase price for the assets of the business was
$854,807 and is payable monthly based on the percentage of
monthly revenue the Master Licensee earns from its customers
through January 2019. These amounts were recorded as Notes
Receivable based on the cash flow expected to be received from
these payments discounted at 8.08%. The balance due at
December 31, 2009 from the UK Master Licensee was $786,595
and is expected to be repaid as follows:
|
|
|
|
|
2010
|
|
$
|
54,674
|
|
2011
|
|
|
69,305
|
|
2012
|
|
|
78,500
|
|
2013
|
|
|
88,582
|
|
2014
|
|
|
67,857
|
|
Thereafter
|
|
|
427,677
|
|
|
|
|
|
|
|
|
$
|
786,595
|
|
|
|
|
|
|
In connection with the sale of the UK Master License discussed
above, a gain of $128,481 net of a loss of $221,466
resulting from the reclassification of the accumulated other
comprehensive loss to operating results was recognized under the
installment sales method and was recorded as deferred revenue.
During the year ended December 31, 2009, $3,723 of the gain
was recognized.
|
|
NOTE 5
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment, net as of December 31, 2009 and
2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Items in service
|
|
$
|
10,264,929
|
|
|
$
|
7,138,496
|
|
Equipment and furniture
|
|
|
2,084,957
|
|
|
|
1,944,730
|
|
Vehicles
|
|
|
466,986
|
|
|
|
436,027
|
|
Computer equipment
|
|
|
895,171
|
|
|
|
899,140
|
|
Computer software
|
|
|
5,891,775
|
|
|
|
4,996,924
|
|
Leasehold improvements
|
|
|
322,707
|
|
|
|
320,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,926,525
|
|
|
|
15,736,097
|
|
Less: accumulated depreciation and amortization
|
|
|
(12,067,043
|
)
|
|
|
(9,085,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,859,482
|
|
|
$
|
6,650,816
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, computer software
includes costs of $4,688,063 and $4,004,074, respectively, for
the development of a new technology platform for field service
operations, accounting, billing and collections. Included in
those costs are payroll and interest costs of $1,669,564 and
$1,200,848 at December 31, 2009 and 2008, respectively.
Depreciation and amortization expense for those assets during
the years ended December 31, 2009, 2008 and 2007 was
$3,018,459, $3,542,061 and $2,809,438, respectively.
F-14
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
Goodwill and other intangible assets have been recognized in
connection with the acquisitions described in Note 3, which
is expected to be fully deductible for tax purposes. For the
years ended December 31, 2009, 2008 and 2007, amortization
was $1,725,593, $1,664,571 and $1,604,128, respectively. Total
accumulated amortization on these intangible assets was
$7,596,951 and $5,841,358 at December 31, 2009 and 2008,
respectively.
In November 2004, HB Fairview Holdings LLC (HB
Fairview) was formed by the Companys shareholders to
acquire Swisher International, Inc. At that time the former
President of the Company and his spouse (the
Sellers) and HB Fairview entered into a Stock
Purchase Agreement. Pursuant to the Stock Purchase Agreement, HB
Fairview acquired majority ownership of the Company. In
connection with the sale of stock to HB Fairview and in
consideration for an agreement not to compete, the Company
forgave debt owed to the Company by the President in the amount
of $1,447,399 (including a note receivable for stock with a
discounted balance of $270,103) and made a subsequent payment of
$500,000 in April 2005. The Company recorded an intangible asset
for the non-compete agreement for the total amount of $1,947,399
and it was amortized over the five years ending in October 2009.
Changes in the carrying amount of goodwill and other intangible
assets for the three years ended December 31, 2009, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
13,668,316
|
|
|
$
|
13,659,820
|
|
|
$
|
11,110,283
|
|
Goodwill acquired
|
|
|
5,003,145
|
|
|
|
322,121
|
|
|
|
2,652,537
|
|
Foreign currency adjustment
|
|
|
|
|
|
|
(113,625
|
)
|
|
|
|
|
Sale of UK subsidiary
|
|
|
(317,972
|
)
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
(103,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
18,353,489
|
|
|
$
|
13,668,316
|
|
|
$
|
13,659,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,744,981
|
|
|
$
|
2,720,330
|
|
|
$
|
3,171,059
|
|
Customers acquired
|
|
|
2,210,000
|
|
|
|
128,000
|
|
|
|
607,000
|
|
Amortization
|
|
|
(1,158,965
|
)
|
|
|
(1,080,349
|
)
|
|
|
(1,029,729
|
)
|
Impairment
|
|
|
(30,000
|
)
|
|
|
(23,000
|
)
|
|
|
(28,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,766,016
|
|
|
$
|
1,744,981
|
|
|
$
|
2,720,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
631,070
|
|
|
$
|
1,215,292
|
|
|
$
|
1,671,691
|
|
Agreements
|
|
|
750,000
|
|
|
|
|
|
|
|
118,000
|
|
Amortization
|
|
|
(566,628
|
)
|
|
|
(584,222
|
)
|
|
|
(574,399
|
)
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
814,442
|
|
|
$
|
631,070
|
|
|
$
|
1,215,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, future amortization of customer
relationships and non-compete agreements for the next five years
is as follows:
|
|
|
|
|
2010
|
|
$
|
1,266,526
|
|
2011
|
|
|
849,501
|
|
2012
|
|
|
671,123
|
|
2013
|
|
|
543,761
|
|
2014
|
|
|
249,547
|
|
|
|
|
|
|
|
|
$
|
3,580,458
|
|
|
|
|
|
|
Long-term debt as of December 31, 2009 and 2008 consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Line of credit agreement dated March 2008. Interest is payable
monthly at one month LIBOR plus 2.35% at December 31, 2009,
and one month LIBOR plus 1.95% at December 31, 2008,
maturing in January 2011. Interest rate of 2.58% and 3.03% at
December 31, 2009 and 2008, respectively
|
|
$
|
9,946,932
|
|
|
$
|
9,946,932
|
|
Line of credit agreement dated June 2008. Interest is payable
monthly at one month LIBOR plus 1.50% at December 31, 2009,
and one month LIBOR plus 1.35% at December 31, 2008,
maturing in January 2011. Interest rate of 1.73% and 2.43% at
December 31, 2009 and 2008, respectively
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
Notes payable under Master Loan and Security Agreement, due in
monthly installments at December 31, 2009 of $62,776,
maturing at various times through 2012. Interest is payable
monthly at a weighted average interest rate of 6.64% and 6.94%
at December 31, 2009 and 2008, respectively
|
|
|
899,977
|
|
|
|
1,609,903
|
|
Acquisition notes payable to sellers, due in monthly
installments totaling $145,333
|
|
|
8,197,091
|
|
|
|
808,489
|
|
Capitalized lease obligations, due in monthly installments
totaling $9,605
|
|
|
281,131
|
|
|
|
202,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,325,131
|
|
|
|
27,567,528
|
|
Current portion
|
|
|
(2,295,290
|
)
|
|
|
(26,224,182
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
32,029,841
|
|
|
$
|
1,343,346
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, principal payments due on
long-term debt, including capital leases, is as follows:
|
|
|
|
|
2010
|
|
$
|
2,295,290
|
|
2011
|
|
|
26,836,604
|
|
2012
|
|
|
2,037,158
|
|
2013
|
|
|
904,414
|
|
2014
|
|
|
761,033
|
|
Thereafter
|
|
|
1,490,632
|
|
|
|
|
|
|
|
|
$
|
34,325,131
|
|
|
|
|
|
|
F-16
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2005, the Company entered into a revolving line of
credit for a maximum borrowing of up to $5,000,000 which was to
expire in November 2008. In March 2008, this line was replaced
with a new line of credit for a maximum borrowing of up to
$10,000,000. The $5,000,000 increase in the new line of credit
is personally guaranteed by a shareholder. The new agreement
matures on January 1, 2011. Borrowings under these lines
are used for general working capital purposes, capital
expenditures and acquisitions. In addition to the personal
guarantee of a shareholder for $5,000,000 of the new line, both
lines are secured by substantially all the assets of the Company
not otherwise encumbered. This credit facility contains various
restrictive covenants which limit or prevent, without the
express consent of the bank, making loans, advances, or other
extensions of credit, change in control, consolidation, mergers
or acquisitions, issuing dividends, selling, assigning, leasing,
transferring, or disposing of any part of the business and
incurring indebtedness (Loan and Security Agreement discussed
below). The bank has waived the Companys noncompliance
with certain reporting requirements and meeting minimum
financial thresholds as of and for the year ended
December 31, 2009.
In September 2006, the Company entered into a $15,000,000
revolving credit facility. The credit facility could be repaid
at any time in full without penalty or could be terminated by
the bank upon giving 120 days notice, which could not be
earlier than September 2007. The note was personally guaranteed
by the shareholders. The credit facility contained various
restrictive covenants which limited or prevented, without the
express consent of the bank, making loans, advances, or other
extensions of credit, change in control, consolidation, mergers
or acquisitions, issuing dividends, selling, assigning, leasing,
transferring, or disposing of any part of the business and
incurring indebtedness. In June 2008, this facility was repaid
in full and the Company entered into a new revolving credit
facility, which had a maturity of June 2009. The credit facility
was modified in 2009 to extend the maturity date to
January 1, 2011. The note is personally guaranteed by one
of the shareholders. The credit facility contains various
restrictive covenants which limit or prevent, without the
express consent of the bank, making loans, advances, or other
extensions of credit, change in control, consolidation, mergers
or acquisitions, issuing dividends, selling, assigning, leasing,
transferring or disposing of any part of the business and
incurring indebtedness. The bank has waived the Companys
noncompliance with certain reporting requirements and meeting
minimum financial thresholds as of and for the year ended
December 31, 2009.
In January 2006, the Company entered into agreements for the
development of a new software platform for field service
operations, accounting, billings and collections. Substantially
all the software development cost is being financed through a
Master Loan and Security Agreement (the Agreement).
Borrowings under the Agreement are secured by a first security
interest in the software or hardware acquired. The Agreement
prevents a change in control in excess of 20 percent unless
the acquiring entity assumes all the obligations of the Company
under the Agreement and the net tangible assets and net worth
after consolidation, sale or merger is at least equal to the net
tangible assets and the net worth of the Company immediately
before the consolidation, sale or merger.
During the year ended December 31, 2009, 2008 and 2007, the
Company incurred or assumed $8,191,440, $240,000 and $1,492,000,
respectively, of debt to sellers in connection with certain
acquisitions (Note 3). Two of the seller notes payable
totaling $3,050,000 are secured by letters of credit, which are
guaranteed by shareholders, the remaining notes payable are
secured by the Company. At December 31, 2009, total seller
notes payable were due in monthly installments totaling $145,333
and bore interest at rates ranging between 2.5% and 11%. At
December 31, 2008, these obligations were due in monthly
installments totaling $42,654 and bore interest at rates ranging
between 5% and 6%. The obligations mature at various times
through 2019.
The Company has entered into capitalized lease obligations with
third party finance companies to finance the cost of certain
warewashing equipment. At December 31, 2009, these
obligations are due in monthly installments totaling $9,605 and
bear interest at rates ranging between 6.74% and 11.45%. At
December 31,
F-17
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2008, these obligations are due in monthly installments totaling
$5,543 and bear interest at rates ranging between 6.77% and
11.45%.
|
|
NOTE 8
|
ADVANCES
FROM SHAREHOLDERS
|
The Company borrowed $16,845,000 and $5,000,000 as of
December 31, 2009 and 2008, respectively, under an
unsecured note payable to one of its shareholders. The note
matured in June 2010 and was extended to June 2011. The note
bears interest at the one-month LIBOR rate plus 2.0%. Interest
was 2.23% at December 31, 2009. Interest accrued on this
note is included in accrued expenses of $348,586 and $164,422 at
December 31, 2009 and 2008, respectively.
Additionally, in 2009, another shareholder of the Company
advanced the Company $800,000 (non-interest bearing), which was
subsequently repaid in 2010. This balance of $800,000 at
December 31, 2009 is included in the current portion of
advances from shareholders.
|
|
NOTE 9
|
COMMITMENTS
AND CONTINGENCIES
|
The Company has entered into a Master Guaranty Agreement with a
third party lessor. As of December 31, 2009 and 2008, the
total obligations guaranteed under the agreement were $195,965
and $236,590, respectively.
The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business. Although
occasional adverse decisions (or settlements) may occur, the
Company believes that the final disposition of such matters will
not have a material adverse effect on the Companys
financial position, results of operations or cash flows.
The Company leases its headquarters and other facilities,
equipment and vehicles under operating leases that expire at
varying times through 2017. Future minimum lease payments for
operating leases that had initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 2009
are as follows:
|
|
|
|
|
2010
|
|
$
|
2,120,315
|
|
2011
|
|
|
1,558,851
|
|
2012
|
|
|
1,159,900
|
|
2013
|
|
|
808,104
|
|
2014
|
|
|
655,886
|
|
Thereafter
|
|
|
1,189,302
|
|
|
|
|
|
|
|
|
$
|
7,492,358
|
|
|
|
|
|
|
Total rent expense for operating leases, including those with
terms of less than one year was $2,352,469, $2,270,373, and
$2,172,360 for the years ended December 31, 2009, 2008 and
2007, respectively.
|
|
NOTE 10
|
SEGMENT
INFORMATION
|
The Company primarily provides commercial hygiene services and
products throughout much of the United States, and additionally
operates a worldwide franchise and license system to provide the
same products and services in markets where Company owned
operations do not exist. The Company manages, allocates
resources and reports in one business segment. In connection
with franchisees, the Company earns royalties and fees for
marketing and administrative services provided and product
revenue. In 2008 and 2007, through a wholly-owned subsidiary,
Swisher Hygiene Services UK, Ltd. (SHS), the Company
operated in the UK in much the same fashion as in the US. As the
franchisor, SHS had both franchisees and company operations and
serviced the varied customer base on a weekly basis. In January
2009, the Company sold its UK operations to a new Master
Licensee. During 2009, 2008 and 2007, SHS earned total revenue
for fees and
F-18
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
product sales of $221,225, $1,955,674 and $1,155,036,
respectively. In other international locations, the Company
earns royalty fees and product revenue from Master Licensees.
Total revenue from international locations (including the UK in
2009) was $1,805,762, $3,406,838 and $2,656,997, for the
years ended December 31, 2009, 2008 and 2007, respectively.
FASB ASC 280, Segment Reporting,
establishes standards for reporting information regarding
operating segments in annual financial statements. Operating
segments are identified as components of an enterprise for which
separate discrete financial information is available for
evaluation by the chief operating decision-maker, or
decision-making group in making decisions on how to allocate
resources and assess performance. The Companys chief
operating decision-maker, as defined under FASB ASC 280, is the
Companys chief executive officer. Based on the information
reviewed by its chief executive officer, the Company operates in
one business segment.
|
|
NOTE 11
|
RELATED
PARTY TRANSACTIONS
|
During 2009, the Company was advanced cash by a shareholder
totaling $800,000. The balance is recorded as a short-term
obligation as advances from shareholder. Other advances from
shareholders totaling $16,845,000 and $5,000,000 as of
December 31, 2009 and 2008, respectively, are included as
long-term obligations under advances from shareholder. Advances
from a shareholder, with an outstanding balance of $461,962 were
converted to additional paid-in capital in 2008.
Prior to 2008, the Company was subleasing space at its corporate
headquarters to a company owned by a shareholder/director on a
year-to-year
basis. For the year ended December 31, 2007, the total
amount of sublease income was $60,000.
For the years ended December 31, 2009, 2008 and 2007, the
Company incurred $46,200, $60,399 and $157,898, respectively,
for training course development and utilization of the delivery
platform from a company, the majority of which is owned by a
partnership in which a shareholder and another director have a
controlling interest. Included in accrued expenses at
December 31, 2009 is $145,586 due to this company.
The Company had agreed to pay a company, related by common
ownership with one of the members, a fee for services provided,
including product development, marketing and branding strategy,
and management advisory assistance. The total of these fees were
$100,000, $100,000 and $200,000, for the years ended
December 31, 2008, 2007 and 2006, respectively. In 2009,
the related company waived it rights to these fees and
accordingly, the accrued balance of $500,000, which was
outstanding as of the end of 2008, has been recorded in
forgiveness of debt.
|
|
NOTE 12
|
SUPPLEMENTAL
FINANCIAL INFORMATION
|
Other
Noncurrent Assets
Other noncurrent assets as of December 31, 2009 and 2008
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Trademarks
|
|
$
|
123,830
|
|
|
$
|
42,886
|
|
Employee advances
|
|
|
135,000
|
|
|
|
|
|
Deposits
|
|
|
191,864
|
|
|
|
169,047
|
|
Contract acquisition costs
|
|
|
152,981
|
|
|
|
|
|
Other noncurrent assets
|
|
|
26,700
|
|
|
|
65,558
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
630,375
|
|
|
$
|
277,491
|
|
|
|
|
|
|
|
|
|
|
F-19
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued
Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of
December 31, 2009 and 2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Salaries and payroll taxes
|
|
$
|
517,819
|
|
|
$
|
999,673
|
|
Occupancy costs
|
|
|
312,892
|
|
|
|
410,935
|
|
Professional fees
|
|
|
365,000
|
|
|
|
1,173,921
|
|
Interest
|
|
|
367,232
|
|
|
|
174,849
|
|
Deferred revenue current portion
|
|
|
12,758
|
|
|
|
|
|
Other accrued expenses
|
|
|
1,009,151
|
|
|
|
1,321,740
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,584,852
|
|
|
$
|
4,081,118
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information
Supplemental cash flow information with respect to the years
ended December 31, 2009, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash received during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
54,797
|
|
|
$
|
10,337
|
|
|
$
|
56,013
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
761,107
|
|
|
$
|
1,310,821
|
|
|
$
|
1,340,881
|
|
Notes payable issued on acquisitions
|
|
$
|
7,954,305
|
|
|
$
|
240,000
|
|
|
$
|
1,421,517
|
|
Member advances converted to equity
|
|
$
|
|
|
|
$
|
461,962
|
|
|
$
|
|
|
|
|
NOTE 13
|
SUBSEQUENT
EVENTS
|
The Company evaluated all events and transactions through
November 2, 2010, the date these financial statements were
issued. During this period, there were no material recognizable
or non-recognizable subsequent events except for the following:
Effective July 13, 2010, Swisher International, Inc.
entered into a merger agreement with HB Service, LLC, related
through common ownership. See description of the transaction in
Note 2 to the consolidated financial statements.
On August 17, 2010, the Company entered into a merger
agreement (the Merger Agreement) under which all of
the outstanding common shares of the Company were to be
exchanged for 57,789,630 common shares of CoolBrands
International Inc. (CoolBrands), such that the
Company would become a wholly-owned subsidiary of CoolBrands
(the Merger). Immediately prior to signing the
Merger Agreement, CoolBrands had 56,185,433 shares
outstanding, which remain outstanding. Immediately before the
Merger, CoolBrands completed its Redomestication to Delaware
from Ontario, Canada and became Swisher Hygiene Inc.
(Swisher Hygiene). On November 2, 2010, the
Company completed the Merger and became a wholly-owned
subsidiary of Swisher Hygiene. In the Merger, the former
stockholders of Swisher International, Inc. received
57,789,630 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 48% ownership interest
in Swisher Hygiene. The stockholders of CoolBrands retained 52%
of the company. The share exchange will be accounted for under
SEC reporting rules Financial Reporting Manual Topic 12
constituting a reverse acquisition and is considered to be a
capital transaction, in substance, rather than a business
combination. The transaction is effectively a reverse
recapitalization equivalent to the issuance of
F-20
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock by a private company for the net monetary assets of the
non-operating corporation accompanied by the recapitalization.
Accordingly, the accounting for the share exchange will be
similar to that resulting from a reverse acquisition; except
that the transaction will be consummated at book value and no
goodwill or intangible assets will be recognized. In accordance
with SEC Staff Accounting Bulletin Topic 4, the
accompanying financial statements have been adjusted to give
retroactive effect for the change in reporting entity from
Swisher International, Inc. to Swisher Hygiene, Inc., and to
reflect the change in capital structure as a result of the
Merger. Such change resulted in an increase in the number of
authorized shares from 15,000,000 to 400,000,000 and an increase
in common stock and corresponding decrease in additional paid-in
capital of $45,661 for the years ended December 31, 2009
and 2008.
Since December 31, 2009, the Company has acquired three
franchisees and four additional companies from unrelated
third-parties. The aggregate purchase price for these
acquisitions was $4,020,000.
Since December 31, 2009, one of the shareholders advanced
$6,600,000 to the Company for working capital purposes and
$1,270,000 for the above acquisitions. Pursuant to this Merger
Agreement, these advances will be repaid in November 2010. In
addition $4,600,000 of the working capital advances, along with
the $16,845,000 outstanding as of December 31, 2009 plus
accrued interest have been converted into equity as of
November 2, 2010.
On November 2, 2010, our board of directors approved the
Swisher Hygiene Inc. 2010 Stock Incentive Plan (the
Plan) to attract, retain, motivate and reward key
officers and employees. The Plan, which is subject to
stockholder and the Toronto Stock Exchange (TSX)
approval, allows for grant of stock options, restricted stock
units and other equity instruments up to a total of
6,000,000 shares of our common stock. Under the Plan, the
board approved awards of options to purchase
1,001,137 shares of our common stock. The options vest in
four equal annual installments beginning on the first
anniversary of the grant date and are exercisable at $4.18 per
share. The options expire in 2020. The board also approved the
award of 2,507,449 restricted stock units at $4.18 per
share. The restricted stock units vest in four equal annual
installments beginning on the first anniversary of the grant
date.
F-21
Board of
Directors
Swisher Hygiene Inc.
Charlotte, North Carolina
ACCOUNTANTS
REVIEW REPORT
We have reviewed the consolidated balance sheet of Swisher
Hygiene Inc. and subsidiaries as of September 30, 2010 and
the related consolidated statements of operations, for the three
and nine month periods ended September 30, 2010 and 2009,
and the consolidated statements of stockholders deficit
and accumulated other comprehensive loss and cash flows for the
nine month periods ended September 30, 2010 and 2009. These
interim financial statements are the responsibility of the
Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing
standards of the Public Company Accounting Oversight Board, the
consolidated balance sheet of Swisher Hygiene Inc. and
subsidiaries as of December 31, 2009, and the related
consolidated statements of operations, stockholders
deficit and accumulated other comprehensive loss and cash flows
for the year then ended (not presented herein); and in our
report dated November 2, 2010, we expressed an unqualified
opinion on those consolidated financial statements.
/s/ Scharf
Pera & Co., PLLC
Charlotte,
North Carolina
November 2, 2010
F-22
SWISHER
HYGIENE INC. AND SUBSIDIARIES
SEPTEMBER
30, 2010 AND DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
643,603
|
|
|
$
|
1,270,327
|
|
Accounts receivable, net of allowance
|
|
|
5,786,311
|
|
|
|
4,954,010
|
|
Inventory
|
|
|
2,226,700
|
|
|
|
1,295,784
|
|
Notes receivable
|
|
|
62,722
|
|
|
|
54,674
|
|
Prepaid expenses
|
|
|
194,816
|
|
|
|
187,419
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,914,152
|
|
|
|
7,762,214
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,430,040
|
|
|
|
7,859,482
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
20,001,494
|
|
|
|
18,353,489
|
|
Customer relationships
|
|
|
3,029,061
|
|
|
|
2,766,016
|
|
Non-compete agreements
|
|
|
1,008,451
|
|
|
|
814,442
|
|
Other intangible assets
|
|
|
164,334
|
|
|
|
|
|
Notes receivable
|
|
|
712,257
|
|
|
|
731,921
|
|
Other noncurrent assets
|
|
|
778,190
|
|
|
|
630,375
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
25,693,787
|
|
|
|
23,296,243
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,037,979
|
|
|
$
|
38,917,939
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,074,209
|
|
|
$
|
3,604,266
|
|
Accrued expenses and other current liabilities
|
|
|
4,748,796
|
|
|
|
2,584,852
|
|
Long-term debt, current portion
|
|
|
27,711,526
|
|
|
|
2,295,290
|
|
Advances from shareholder
|
|
|
22,395,000
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
61,929,531
|
|
|
|
9,284,408
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
6,837,157
|
|
|
|
32,029,841
|
|
Advances from shareholder, less current portion
|
|
|
2,000,000
|
|
|
|
16,845,000
|
|
Deferred revenue, less current portion
|
|
|
124,760
|
|
|
|
112,000
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
8,961,917
|
|
|
|
48,986,841
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, authorized
400,000,000 shares; 57,789,630 shares issued and
outstanding at June 30, 2010 and December 31, 2009
|
|
|
57,790
|
|
|
|
57,790
|
|
Additional paid-in capital
|
|
|
27,487,740
|
|
|
|
27,487,740
|
|
Accumulated deficit
|
|
|
(54,508,159
|
)
|
|
|
(47,000,736
|
)
|
|
|
|
|
|
|
|
|
|
Total Swisher Hygiene, Inc. stockholders deficit
|
|
|
(26,962,629
|
)
|
|
|
(19,455,206
|
)
|
Non-controlling interest
|
|
|
109,160
|
|
|
|
101,896
|
|
|
|
|
|
|
|
|
|
|
Total deficit
|
|
|
(26,853,469
|
)
|
|
|
(19,353,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,037,979
|
|
|
$
|
38,917,939
|
|
|
|
|
|
|
|
|
|
|
See
Accompanying Accountants Review Report and Notes to
Consolidated Financial Statements
F-23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service
|
|
$
|
13,922,134
|
|
|
$
|
11,376,973
|
|
|
$
|
39,489,707
|
|
|
$
|
31,598,952
|
|
Franchise and other
|
|
|
2,138,945
|
|
|
|
3,054,293
|
|
|
|
6,463,863
|
|
|
|
10,074,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
16,061,079
|
|
|
|
14,431,266
|
|
|
|
45,953,570
|
|
|
|
41,673,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
6,107,686
|
|
|
|
5,810,276
|
|
|
|
16,870,196
|
|
|
|
16,293,801
|
|
Route expenses
|
|
|
3,511,409
|
|
|
|
3,174,906
|
|
|
|
9,859,640
|
|
|
|
9,167,683
|
|
Selling, general and administrative
|
|
|
7,521,046
|
|
|
|
6,368,549
|
|
|
|
20,895,398
|
|
|
|
17,065,873
|
|
Merger-related expenses
|
|
|
1,425,855
|
|
|
|
|
|
|
|
1,425,855
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,272,266
|
|
|
|
1,180,348
|
|
|
|
3,399,004
|
|
|
|
3,695,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
19,838,262
|
|
|
|
16,534,079
|
|
|
|
52,450,093
|
|
|
|
46,223,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(3,777,183
|
)
|
|
|
(2,102,813
|
)
|
|
|
(6,496,523
|
)
|
|
|
(4,550,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
13,196
|
|
|
|
41,171
|
|
|
|
49,877
|
|
|
|
41,367
|
|
Interest expense
|
|
|
(371,093
|
)
|
|
|
(257,640
|
)
|
|
|
(1,053,513
|
)
|
|
|
(706,460
|
)
|
Gain from bargain purchases
|
|
|
|
|
|
|
56,670
|
|
|
|
|
|
|
|
56,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(357,897
|
)
|
|
|
(159,799
|
)
|
|
|
(1,003,636
|
)
|
|
|
(608,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(4,135,080
|
)
|
|
|
(2,262,612
|
)
|
|
|
(7,500,159
|
)
|
|
|
(5,158,540
|
)
|
Net Income Attributable to Non-controlling Interest
|
|
|
(5,393
|
)
|
|
|
|
|
|
|
(7,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Swisher Hygiene Inc.
|
|
$
|
(4,140,473
|
)
|
|
$
|
(2,262,612
|
)
|
|
$
|
(7,507,423
|
)
|
|
$
|
(5,158,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in the computation of
earnings per share - basic and diluted
|
|
|
57,789,630
|
|
|
|
57,789,630
|
|
|
|
57,789,630
|
|
|
|
57,789,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Accompanying Accountants Review Report and Notes to
Consolidated Financial Statements
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Interest
|
|
|
Total
|
|
|
Balance as of December 31, 2008
|
|
|
57,789,630
|
|
|
$
|
57,790
|
|
|
$
|
27,602,740
|
|
|
$
|
(39,739,851
|
)
|
|
$
|
(221,466
|
)
|
|
|
|
|
|
$
|
(12,300,787
|
)
|
Liquidation of foreign subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,466
|
|
|
|
|
|
|
|
221,466
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(115,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,000
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,158,540
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,158,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009 (unaudited)
|
|
|
57,789,630
|
|
|
|
57,790
|
|
|
|
27,487,740
|
|
|
|
(44,898,391
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,352,861
|
)
|
Contributions of equity on acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,102,345
|
)
|
|
|
|
|
|
|
1,896
|
|
|
|
(2,100,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
57,789,630
|
|
|
|
57,790
|
|
|
|
27,487,740
|
|
|
|
(47,000,736
|
)
|
|
|
|
|
|
|
101,896
|
|
|
|
(19,353,310
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,507,423
|
)
|
|
|
|
|
|
|
7,264
|
|
|
|
(7,500,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2010 (unaudited)
|
|
|
57,789,630
|
|
|
$
|
57,790
|
|
|
$
|
27,487,740
|
|
|
$
|
(54,508,159
|
)
|
|
|
|
|
|
$
|
109,160
|
|
|
$
|
(26,853,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Accompanying Accountants Review Report and Notes to
Consolidated Financial Statements
F-25
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,500,159
|
)
|
|
$
|
(5,158,540
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,399,004
|
|
|
|
3,695,980
|
|
Gain from bargain purchase
|
|
|
|
|
|
|
(56,670
|
)
|
Provision for bad debt
|
|
|
153,904
|
|
|
|
270,431
|
|
Changes in working capital components:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(421,065
|
)
|
|
|
759,487
|
|
Inventory
|
|
|
(730,566
|
)
|
|
|
101,629
|
|
Prepaid expenses and other assets
|
|
|
(142,451
|
)
|
|
|
(353,081
|
)
|
Accounts payable and accrued expenses
|
|
|
4,281,632
|
|
|
|
94,678
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
(959,701
|
)
|
|
|
(646,086
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,657,192
|
)
|
|
|
(1,950,456
|
)
|
Net change in notes receivable
|
|
|
11,616
|
|
|
|
(48,953
|
)
|
Acquisitions
|
|
|
(890,000
|
)
|
|
|
(529,950
|
)
|
Other
|
|
|
|
|
|
|
6,979
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(4,535,576
|
)
|
|
|
(2,522,380
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
|
|
|
|
|
|
Distributions to shareholders
|
|
|
|
|
|
|
(115,000
|
)
|
Proceeds from advances from shareholder
|
|
|
7,550,000
|
|
|
|
4,295,000
|
|
Repayments on advances from shareholder
|
|
|
(800,000
|
)
|
|
|
|
|
Net principal payments on long-term debt
|
|
|
(1,881,447
|
)
|
|
|
(1,118,589
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
4,868,553
|
|
|
|
3,061,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(626,724
|
)
|
|
|
(107,055
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,270,327
|
|
|
|
341,722
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
643,603
|
|
|
$
|
234,667
|
|
|
|
|
|
|
|
|
|
|
See
Accompanying Accountants Review Report and Notes to
Consolidated Financial Statements
F-26
SWISHER
HYGIENE INC. AND SUBSIDIARIES
|
|
NOTE 1
|
BASIS OF
PRESENTATION
|
The accompanying unaudited consolidated interim financial
statements of Swisher Hygiene Inc. and subsidiaries have been
prepared in accordance with accounting principles generally
accepted in the United States of America and should be read in
conjunction with the audited financial statements and notes
thereto contained in Swisher Hygiene Inc. and Subsidiaries
audited financial statements for the year ended
December 31, 2009. In the opinion of management, all
adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have
been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results expected
for the full year. Notes to the unaudited consolidated interim
financial statements which would substantially duplicate the
disclosures contained in the audited consolidated financial
statements for fiscal year ended December 31, 2009 have
been omitted.
Effective July 13, 2010, Swisher International, Inc.
entered into a merger agreement with HB Service, LLC, related
through common ownership. See description of the transaction in
Note 2 to the consolidated audited financial statements.
As discussed in Note 5, on November 2, 2010, Swisher
International, Inc. merged with and became a wholly-owned
subsidiary of Swisher Hygiene, Inc. and in accordance with SEC
Staff Bulletin Topic 4, the accompanying unaudited
consolidated interim financial statements have been adjusted to
give retroactive effect for the change in reporting entity from
Swisher International, Inc. to Swisher Hygiene Inc. As such,
references to the Company within the unaudited
consolidated interim financial statements refers to the former
Swisher International, Inc. and Subsidiaries.
In accordance with SEC Staff Accounting Bulletin Topic
5, the Company is expensing all professional and legal fees
incurred in connection with the ongoing registration process for
the Companys existing shares as these expenses are not
being incurred in connection with the issuance of equity.
|
|
NOTE 2
|
BUSINESS
DESCRIPTION
|
Swisher International, Inc. and its wholly-owned subsidiaries,
founded in 1986 and headquartered in Charlotte, North Carolina,
and operating under the trade name of
Swisher®,
provides hygiene solutions to customers throughout much of North
America and internationally through its global network of
company owned operations, franchises and master licensees. These
solutions include products and services that are designed to
promote superior cleanliness and sanitation in commercial
environments, while enhancing the safety, satisfaction and
well-being of employees and patrons. These solutions are
typically delivered by employees on a regularly scheduled basis
and may involve 1) the sale of certain consumable products
such as chemicals, soap, paper and cleaning supplies,
2) the sale
and/or
rental of equipment for the dispensing of such products as well
as items that require regular maintenance and cleaning such as
floor mats, mops, linens and dish machines, and 3) the
performance of certain manual cleaning processes. The Company
serves customers in a wide range of end-markets, with a
particular emphasis on the foodservice, hospitality, retail,
industrial and healthcare industries across North America.
The Company has 65 company owned operations and 12
franchise operations located throughout the United States and
Canada and has entered into 10 Master License Agreements
covering the United Kingdom, Ireland, Portugal, the Netherlands,
Singapore, the Philippines, Taiwan, Korea, Hong
Kong/Macau/China, and Mexico.
For the nine months ended September 30, 2010, the Company
acquired three franchises, and three businesses owned by
unrelated parties. The results of operations of these
acquisitions have been included in
See Accompanying Accountants Review Report
F-27
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Companys consolidated financial statements since their
respective acquisition dates. None of these acquisitions were
significant to the Companys consolidated financial results
and therefore, proforma financial information is not presented.
The allocation of purchase price associated with these business
combinations is provisional pending receipt of valuation reports
and other analysis for certain acquired assets and assumed
liabilities. The following table summarizes the current
estimated aggregate fair values of the assets acquired and
liabilities assumed at the date of acquisition for the
acquisitions made during the nine months ended
September 30, 2010:
|
|
|
|
|
Net tangible assets acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
565,140
|
|
Inventory
|
|
|
200,350
|
|
Property and equipment
|
|
|
321,083
|
|
Accounts payable and accrued expenses
|
|
|
(1,352,254
|
)
|
|
|
|
|
|
|
|
|
(265,681
|
)
|
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
|
Customer relationships
|
|
|
1,050,000
|
|
Non-compete agreements
|
|
|
395,000
|
|
Other intangible assets
|
|
|
170,000
|
|
|
|
|
|
|
Total
|
|
|
1,615,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,645,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate purchase price
|
|
|
2,995,000
|
|
Less: Notes issued on acquisition
|
|
|
2,105,000
|
|
|
|
|
|
|
Cash paid on acquisitions
|
|
$
|
890,000
|
|
|
|
|
|
|
|
|
NOTE 4
|
ADVANCES
FROM SHAREHOLDER
|
The Company borrowed $21,445,000 and $16,845,000 as of
September 30, 2010 and December 31, 2009,
respectively, under an unsecured note payable to one of its
shareholders. The note matured in June 2010, but was extended to
June 2011. These advances, plus accrued interest, were converted
to equity upon completion of the Merger (See Note 5). The
note bears interest at the one month LIBOR rate plus 2.0%.
Interest was 2.26% and 2.23% at September 30, 2010 and
December 31, 2009, respectively. Interest accrued on this
note is included in accrued expenses and was $708,213 and
$348,586 at September 30, 2010 and December 31, 2009,
respectively.
On August 9, 2010, the Company borrowed $2,000,000 from one
of its shareholders pursuant to an unsecured promissory note.
The note matures on the earlier of the one year anniversary of
the effective time of the Merger or January 1, 2012. The note
bears interest at the short-term Applicable Federal Rate and the
interest rate will adjust on a monthly basis as the short-term
Applicable Federal Rate adjusts. To date, no interest or
principal has been paid. As of September 30, 2010, the
outstanding amount owing under the note was $2,001,425. Upon an
event of default, as defined in the promissory note, the entire
unpaid principal balance of the note and accrued interest shall
be immediately due and payable.
On August 31, 2010, the Company borrowed $950,000 from one
of its shareholders pursuant to an unsecured promissory note.
The note bears interest at the short-term Applicable Federal
Rate and the interest
See Accompanying Accountants Review Report
F-28
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
rate adjusts on a monthly basis as the short-term Applicable
Federal Rate adjusts. The note matured at the effective time of
the Merger and was paid in connection with the closing.
|
|
NOTE 5
|
SUBSEQUENT
EVENTS
|
The Company evaluated all events and transactions through
November 2, 2010, the date these financial statements were
issued. During this period, there were no material recognizable
or non-recognizable subsequent events except for the following:
On August 17, 2010, the Company entered into a merger
agreement (the Merger Agreement) under which all of
the outstanding common shares of the Company were to be
exchanged for 57,789,630 common shares of CoolBrands
International Inc. (CoolBrands), such that the
Company would become a wholly-owned subsidiary of CoolBrands
(the Merger). Immediately prior to signing the
Merger Agreement, CoolBrands had 56,185,433 shares
outstanding, which remain outstanding. Immediately before the
Merger, CoolBrands completed its Redomestication to Delaware
from Canada and became Swisher Hygiene Inc. (Swisher
Hygiene). On November 2, 2010, the Company completed
the Merger and became a wholly-owned subsidiary of Swisher
Hygiene. In the Merger, the former stockholders of Swisher
International, Inc. received 57,789,630 shares of Swisher
Hygiene common stock, representing, on a fully diluted basis, a
48% ownership interest in Swisher Hygiene. The stockholders of
CoolBrands retained 52% of the company. The share exchange will
be accounted for under SEC reporting rules Financial
Reporting Manual Topic 12 constituting a reverse acquisition
and is considered to be a capital transaction, in substance,
rather than a business combination. The transaction is
effectively a reverse recapitalization equivalent to the
issuance of stock by a private company for the net monetary
assets of the non-operating corporation accompanied by the
recapitalization. Accordingly, the accounting for the share
exchange will be similar to that resulting from a reverse
acquisition; except that the transaction will be consummated at
book value and no goodwill or intangible assets will be
recognized. In accordance with SEC Staff Accounting
Bulletin Topic 4, the accompanying financial statements
have been adjusted to give retroactive effect for the change in
reporting entity from Swisher International, Inc. to Swisher
Hygiene Inc., and to reflect the change in capital structure as
a result of the Merger. Such change resulted in an increase in
the number of authorized shares from 15,000,000 to 400,000,000
and an increase in common stock and corresponding decrease in
additional paid-in capital of $45,661 for the six months ended
June 30, 2010 and the year ended December 31, 2009.
Since September 30, 2010, the Company has acquired a
company from an unrelated third-party. The aggregate purchase
price for this acquisition was $400,000.
On November 2, 2010, our board of directors approved the
Swisher Hygiene Inc. 2010 Stock Incentive Plan (the
Plan) to attract, retain, motivate and reward key
officers and employees. The Plan, which is subject to
stockholder and TSX approval, allows for grant of stock options,
restricted stock units and other equity instruments up to a
total of 6,000,000 shares of our common stock. Under the
Plan, the board approved awards of options to purchase
1,001,137 shares of our common stock. The options vest in
four equal annual installments beginning on the first
anniversary of the grant date and are exercisable at $4.18 per
share. The options expire in 2020. The board also approved the
award of 2,507,449 restricted stock units at $4.18 per
share. The restricted stock units vest in four equal annual
installments beginning on the first anniversary of the grant
date.
See Accompanying Accountants Review Report
F-29
Report of
Independent Registered Public Accounting Firm
To the Shareholders of
CoolBrands International Inc.
We have audited the accompanying consolidated balance sheets of
CoolBrands International Inc. (the Company) as of
August 31, 2010 and 2009, and the related consolidated
statements of income and other comprehensive income (loss),
shareholders equity and cash flows for each of the three
years in the period ended August 31, 2010. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of August 31, 2010 and 2009, and
the results of its operations and its cash flows for each of the
three years in the period ended August 31, 2010 in
conformity with accounting principles generally accepted in the
United States of America.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
October 25, 2010, except as to Note 16, which is as
of November 2, 2010
F-30
CoolBrands
International Inc.
As
at August 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
|
(Amounts expressed in thousands of Canadian dollars)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (note 3)
|
|
|
28,847
|
|
|
|
17,907
|
|
Short-term investments (note 3)
|
|
|
35,839
|
|
|
|
43,991
|
|
Interest receivable
|
|
|
|
|
|
|
821
|
|
Current assets of discontinued operations (note 4)
|
|
|
50
|
|
|
|
135
|
|
Prepaid expenses
|
|
|
58
|
|
|
|
88
|
|
Other assets (note 6)
|
|
|
1,306
|
|
|
|
3,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,100
|
|
|
|
66,517
|
|
Property, plant and equipment (note 5)
|
|
|
|
|
|
|
84
|
|
Other assets (note 6)
|
|
|
368
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,468
|
|
|
|
67,084
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
741
|
|
|
|
205
|
|
Current liabilities of discontinued operations (note 4)
|
|
|
2,080
|
|
|
|
3,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,821
|
|
|
|
3,368
|
|
Other liabilities (note 8)
|
|
|
2,930
|
|
|
|
3,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,751
|
|
|
|
6,547
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Capital stock (note 9)
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
|
Unlimited number of common shares, no par value
|
|
|
|
|
|
|
|
|
Issued and outstanding 56,205,433 (2009 56,075,433)
shares
|
|
|
139,485
|
|
|
|
139,388
|
|
Accumulated paid-in capital
|
|
|
54,176
|
|
|
|
54,070
|
|
Accumulated other comprehensive loss
|
|
|
(46,441
|
)
|
|
|
(45,959
|
)
|
Deficit
|
|
|
(86,503
|
)
|
|
|
(86,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
60,717
|
|
|
|
60,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,468
|
|
|
|
67,084
|
|
|
|
|
|
|
|
|
|
|
Contingencies (note 14)
|
|
|
|
|
|
|
|
|
Approved by the Board of Directors
See accompanying notes to consolidated financial statements.
F-31
CoolBrands
International Inc.
For
the years ended August 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(Amounts expressed in thousands of Canadian dollars, except
per share data)
|
|
|
Income
|
|
|
571
|
|
|
|
1,447
|
|
|
|
2,747
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,772
|
|
|
|
1,532
|
|
|
|
1,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before the following
|
|
|
(1,201
|
)
|
|
|
(85
|
)
|
|
|
1,016
|
|
Gain (loss) on foreign exchange
|
|
|
(62
|
)
|
|
|
1,888
|
|
|
|
(23
|
)
|
Gain on sale of property, plant and equipment (note 5)
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
Reduction in accrued post-retirement benefits
|
|
|
580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
352
|
|
|
|
1,803
|
|
|
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes (note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
352
|
|
|
|
1,803
|
|
|
|
993
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations (note 4)
|
|
|
107
|
|
|
|
199
|
|
|
|
4,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
459
|
|
|
|
2,002
|
|
|
|
5,396
|
|
Change in accrued benefit cost of defined benefit plan
|
|
|
(482
|
)
|
|
|
(929
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) for the year
|
|
|
(23
|
)
|
|
|
1,073
|
|
|
|
5,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations basic and diluted
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
0.02
|
|
Discontinued operations basic and diluted
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.08
|
|
Income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.10
|
|
Diluted
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
0.09
|
|
See accompanying notes to consolidated financial statements.
F-32
CoolBrands
International Inc.
For the years ended August 31, 2010, 2009
and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Capital
|
|
|
Contributed
|
|
|
Comprehensive
|
|
|
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
Surplus
|
|
|
Loss
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(Amounts expressed in thousands of Canadian dollars)
|
|
|
Balance August 31, 2007
|
|
|
139,388
|
|
|
|
53,941
|
|
|
|
(44,895
|
)
|
|
|
(94,360
|
)
|
|
|
54,074
|
|
Income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,396
|
|
|
|
5,396
|
|
Stock-based compensation (note 9)
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
Change in accrued benefit cost of defined benefit plan
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2008
|
|
|
139,388
|
|
|
|
53,998
|
|
|
|
(45,030
|
)
|
|
|
(88,964
|
)
|
|
|
59,392
|
|
Income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,002
|
|
|
|
2,002
|
|
Stock-based compensation (note 9)
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
Change in accrued benefit cost of defined benefit plan
|
|
|
|
|
|
|
|
|
|
|
(929
|
)
|
|
|
|
|
|
|
(929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2009
|
|
|
139,388
|
|
|
|
54,070
|
|
|
|
(45,959
|
)
|
|
|
(86,962
|
)
|
|
|
60,537
|
|
Income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459
|
|
|
|
459
|
|
Stock-based compensation (note 9)
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
Exercise of stock options
|
|
|
97
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Change in accrued benefit cost of defined benefit plan
|
|
|
|
|
|
|
|
|
|
|
(482
|
)
|
|
|
|
|
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2010
|
|
|
139,485
|
|
|
|
54,176
|
|
|
|
(46,441
|
)
|
|
|
(86,503
|
)
|
|
|
60,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-33
CoolBrands
International Inc.
For
the years ended August 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(Amounts expressed in thousands of Canadian dollars)
|
|
|
Cash and cash equivalents provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
352
|
|
|
|
1,803
|
|
|
|
993
|
|
Adjustments to reconcile income to net cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
59
|
|
|
|
73
|
|
|
|
180
|
|
Stock-based compensation
|
|
|
125
|
|
|
|
72
|
|
|
|
57
|
|
Change in fair value of short-term investments
|
|
|
115
|
|
|
|
21
|
|
|
|
(461
|
)
|
Gain on sale of property, plant and equipment
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
Cash effect of changes from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
788
|
|
|
|
(72
|
)
|
|
|
(117
|
)
|
Prepaid expenses
|
|
|
30
|
|
|
|
70
|
|
|
|
(24
|
)
|
Accounts payable and accrued liabilities
|
|
|
336
|
|
|
|
(39
|
)
|
|
|
(361
|
)
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Other assets
|
|
|
9
|
|
|
|
364
|
|
|
|
1,743
|
|
Other liabilities
|
|
|
(731
|
)
|
|
|
(98
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
2,194
|
|
|
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Promissory note advances
|
|
|
(1,213
|
)
|
|
|
(1,000
|
)
|
|
|
|
|
Repayments of promissory note
|
|
|
4,440
|
|
|
|
725
|
|
|
|
|
|
Decrease (increase) in short-term investments
|
|
|
8,037
|
|
|
|
8,915
|
|
|
|
(50,248
|
)
|
Proceeds from sale of warrants
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,526
|
|
|
|
8,640
|
|
|
|
(50,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares on exercise of stock options
|
|
|
78
|
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
|
|
|
|
|
|
|
|
(9,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
(9,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash flows due to changes in foreign
exchange rates
|
|
|
116
|
|
|
|
(366
|
)
|
|
|
(2,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
107
|
|
|
|
199
|
|
|
|
(1,560
|
)
|
Operating
|
|
|
(935
|
)
|
|
|
(1,132
|
)
|
|
|
2,477
|
|
Investing
|
|
|
|
|
|
|
|
|
|
|
(780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(828
|
)
|
|
|
(933
|
)
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents during the
year
|
|
|
10,940
|
|
|
|
9,535
|
|
|
|
(59,979
|
)
|
Cash and cash equivalents Beginning of year
|
|
|
17,907
|
|
|
|
8,372
|
|
|
|
68,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents End of year
|
|
|
28,847
|
|
|
|
17,907
|
|
|
|
8,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment by trustee in bankruptcy to 2118769 Ontario Inc.
(note 7)
|
|
|
|
|
|
|
|
|
|
|
(6,469
|
)
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes recovered (paid) relating to discontinued operations
|
|
|
273
|
|
|
|
296
|
|
|
|
(208
|
)
|
Interest paid relating to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
1,267
|
|
See accompanying notes to consolidated financial statements.
F-34
CoolBrands
International Inc.
August 31,
2010 and 2009
(Amounts expressed in thousands of Canadian dollars)
1 Description
of business
CoolBrands International Inc. (CoolBrands or
the company) was formed in 1994 and had been focused
on the marketing and selling of a broad range of ice cream and
frozen snack products.
During fiscal 2006 and 2007, the board of directors approved the
active marketing of certain of the companys business lines
for sale. As a result, the majority of the companys
operations were disposed of during fiscal 2007. During fiscal
2010, the companys principal operations consist of the
management of its cash resources, including reviewing and
considering potential opportunities to deploy such cash
resources, and revenue earned from renting an owned building
located in New Jersey. See note 16 regarding a merger
transaction on November 2, 2010.
2 Summary
of significant accounting policies
Basis
of presentation
These consolidated financial statements include the accounts of
CoolBrands and its principal direct and indirect wholly owned
subsidiaries: Integrated Brands, Inc., Eskimo Pie Corporation,
Eskimo Pie Frozen Distribution, Inc., Integrated Brands
Franchise Corporation and CoolBrands Smoothies Corporation,
collectively referred to as the company. All significant
intercompany transactions are eliminated. The company has
prepared these consolidated financial statements in accordance
with accounting principles generally accepted in the United
States of America.
Use of
estimates and measurement uncertainty
The preparation of these consolidated financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the dates of
the consolidated financial statements and the reported amounts
of income and expenses during the year. Significant estimates
are used in determining, but are not limited to, the allowance
for doubtful accounts, income tax valuation allowances, accrued
liabilities and contingencies. By their nature, these estimates
are subject to measurement uncertainty. Actual results could
differ from those estimates. The effect on the consolidated
financial statements of changes in estimates in future periods
could be material and would be accounted for in the year the
change occurs.
Cash
and cash equivalents and short-term investments
All highly liquid commercial paper purchased with maturities of
three months or less is classified as a cash equivalent. Cash
equivalents are stated at fair value. Commercial paper, bank
term deposits, bankers acceptances and bonds purchased
with maturities greater than three months are classified as
short-term investments.
Property,
plant and equipment
Property, plant and equipment are stated at the lower of cost
less accumulated depreciation and net recoverable amount,
including any writedowns. Depreciation of buildings and
equipment is provided by the straight-line or declining balance
methods, using the estimated useful lives of the assets, being
38 years and two to ten years, respectively.
F-35
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
Financial
instruments
The company carries a number of financial instruments including
cash and cash equivalents, short-term investments, interest
receivable, promissory notes receivable, accounts payable, and
accrued liabilities. Unless otherwise noted, it is
managements opinion that the company is not exposed to
significant interest, currency or credit risks arising from
these financial instruments. The fair values of these financial
instruments approximate their carrying values, unless otherwise
noted, due to the relatively short-term nature of their
maturities.
Concentration
of credit risk
Financial instruments, which potentially subject the company to
concentration of credit risk, consist principally of cash and
cash equivalents, short-term investments and receivables. The
company attempts to minimize credit risk with respect to its
cash and cash equivalents and short-term investments by adhering
to its statement of investment policy that specifies investments
be made in institutions with minimum of A or equivalent ratings
by recognized rating agencies.
Earnings
per share
Basic earnings per share are calculated using the weighted
average number of common shares outstanding during the year. The
computation of diluted earnings per share assumes the basic
weighted average number of shares outstanding during the year is
increased to include the number of additional common shares that
would have been outstanding if the potentially dilutive common
shares had been issued. The dilutive effect of warrants and
stock options is determined using the treasury stock method.
Foreign
currency translation
Foreign currency denominated monetary assets and liabilities are
translated into Canadian dollars using the exchange rates in
effect at the balance sheet dates. Amounts transferred from
cumulative comprehensive income or loss on the sale or
liquidation of an investment in a foreign entity is reported as
part of the gain or loss on sale or liquidation. Non-monetary
assets and liabilities have been translated at historical rates
and revenue and expenses have been translated at the average
exchange rate for the year.
Income
taxes
The company provides for income taxes using the asset and
liability method of accounting for income taxes. Under this
method, future income tax assets and liabilities are determined
based on temporary differences between financial statement
values and income tax values of assets and liabilities and are
measured using substantively enacted income tax rate laws
expected to be in effect when the differences are expected to
reverse. The company establishes a valuation allowance against
future income tax assets if it cannot demonstrate through the
use of objectively verifiable available information that it is
more likely than not that the future income tax asset will be
realized.
Stock-based
compensation
The company accounts for stock-based compensation using the fair
value method of accounting. Under this method, compensation
expense is measured at fair value at the grant date using the
Black-Scholes option pricing model and recognized over the
vesting period using the graded vesting method, with a
corresponding increase to contributed surplus.
F-36
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
3 Cash
and cash equivalents and short-term investments
Cash and cash equivalents and short-term investments balances
comprise the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
On deposit with financial institutions
|
|
|
743
|
|
|
|
190
|
|
High interest savings accounts at Canadian chartered banks
|
|
|
8,478
|
|
|
|
|
|
Canadian chartered bank guaranteed investment certificate
|
|
|
13,248
|
|
|
|
|
|
Inter Pipeline Fund commercial paper
|
|
|
4,510
|
|
|
|
|
|
TransCanada Pipeline commercial paper
|
|
|
1,868
|
|
|
|
|
|
Treasury bills
|
|
|
|
|
|
|
75
|
|
Money market accounts
|
|
|
|
|
|
|
17,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,847
|
|
|
|
17,907
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
GE Capital commercial paper
|
|
|
10,000
|
|
|
|
|
|
Enbridge Inc. commercial paper
|
|
|
8,309
|
|
|
|
|
|
Inter Pipeline Fund commercial paper
|
|
|
1,547
|
|
|
|
|
|
Canadian chartered bank deposit note
|
|
|
5,432
|
|
|
|
|
|
Canadian chartered bank guaranteed investment certificate
|
|
|
10,551
|
|
|
|
|
|
Bank term deposits and bankers acceptances
|
|
|
|
|
|
|
21,694
|
|
Government guaranteed agency bonds
|
|
|
|
|
|
|
18,093
|
|
TransCanada Pipeline commercial paper
|
|
|
|
|
|
|
4,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,839
|
|
|
|
43,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,686
|
|
|
|
61,898
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents and short-term investments
is $2,586 (2009 $4,588) held in US dollar
denominated investments and deposits.
F-37
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
4 Discontinued
operations
Below is a summary of the components of the assets and
liabilities arising from the sale of the companys
operations and the respective operating results of the business
units sold for each of the years presented. Cash flows are
generated from the collection of accounts receivable and
deposits remaining from the discontinued operations segments.
Cash flows are used primarily for payments of fees associated
with litigation matters and for liabilities remaining from the
discontinued operations. Due to the uncertainty of the date when
the litigation matters are resolved, it is not possible to
predict the period of time that cash flows will no longer
continue from the discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Current assets of discontinued operations
Accounts receivable, net
|
|
|
|
|
|
|
85
|
|
Deposits
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
63
|
|
|
|
506
|
|
Accruals and other liabilities
|
|
|
1,920
|
|
|
|
2,565
|
|
Income taxes payable
|
|
|
97
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,080
|
|
|
|
3,163
|
|
|
|
|
|
|
|
|
|
|
Net
income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) for the year before income taxes
|
|
|
(158
|
)
|
|
|
(347
|
)
|
|
|
(2,063
|
)
|
Recovery of income taxes
|
|
|
265
|
|
|
|
546
|
|
|
|
503
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
5,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
107
|
|
|
|
199
|
|
|
|
4,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 Property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Land
|
|
|
|
|
|
|
25
|
|
Building and equipment
|
|
|
|
|
|
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,182
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
2,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense during the year was $59 (2009
$73; 2008 $180). On August 26, 2010, the
company entered into an agreement for sale of commercial
property to sell its land and building located in Bloomfield,
New Jersey. The closing of the sale took place on
October 22, 2010.
F-38
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
6 Other
assets
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Promissory notes receivable
|
|
|
213
|
|
|
|
3,575
|
|
Amount due from sale of property, plant and equipment
|
|
|
1,280
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
289
|
|
Investment in marketable securities
|
|
|
181
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,674
|
|
|
|
4,058
|
|
Less: Amount due within one year
|
|
|
1,306
|
|
|
|
3,575
|
|
|
|
|
|
|
|
|
|
|
Other assets long-term portion
|
|
|
368
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
The promissory notes receivable of $3,575 and warrants of $289
outstanding as at August 31, 2009 were collected during
fiscal 2010.
The amount due from sale of property, plant and equipment
includes US$800 that was received on October 22, 2010 and
US$400 that is due December 22, 2010. The US$400 amount due
is secured by a mortgage on the property sold and bears interest
at an annual rate of 10%.
7 Secured
note payable and interest due to a related company
In November 2006, 2118769 Ontario Inc. (2118769), a company
controlled by Michael Serruya, the chairman, president and chief
executive officer of the company, purchased all of the bank
indebtedness of Americana Foods Limited Partnership (Americana
Foods), which aggregated US$21,407 from the lender. CoolBrands
was the guarantor of the Americana Foods debt. In October 2006,
Americana Foods was placed into bankruptcy and the independent
trustee sold or liquidated all of the assets of Americana Foods.
In March 2007, the trustee made an initial payment to 2118769 of
US$13,000 and a final payment of US$6,500 was made by the
trustee in March 2008. In March 2008, the company, pursuant to
its guarantee, repaid the remaining balance of the secured notes
payable and accrued interest owing to the related company of
US$3,166 and the expenses paid by 2118769 in connection with the
purchase of the Americana indebtedness of US$291.
8 Other
liabilities
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Accrued benefit cost of post-retirement benefits (note 11)
|
|
|
1,790
|
|
|
|
2,432
|
|
Accrued benefit cost of non-registered pension plan
|
|
|
165
|
|
|
|
177
|
|
Accrued environmental liability
|
|
|
|
|
|
|
77
|
|
Accrued benefit cost of defined benefit retirement plan
|
|
|
975
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,930
|
|
|
|
3,179
|
|
|
|
|
|
|
|
|
|
|
Subsequent to August 31, 2010, the company entered into a
settlement agreement and mutual release that included, among
other matters, the settlement of the obligation noted in the
above chart pertaining to the post-retirement benefits of former
employees of one of the companys subsidiaries. The company
agreed to make a payment of US$1,300 in full settlement of this
liability. The accounting gain of approximately $450 will be
reflected in fiscal 2011.
F-39
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
9 Shareholders
equity and stock options
Capital
stock
On May 31, 2007, the company filed articles of amendment in
order to affect the elimination of its dual class share
structure. As a result of the elimination of the companys
dual class structure, a total of 6,025,659 multiple voting
shares and 50,049,774 subordinate voting shares were changed
into 56,075,433 common shares. The companys articles of
amendment authorize an unlimited number of common shares.
The following table summarizes the changes in common shares
during the three-year period ended August 31, 2010:
|
|
|
|
|
|
|
Number of
|
|
|
|
Shares
|
|
|
Outstanding August 31, 2007, 2008 and 2009
|
|
|
56,075,433
|
|
Issued on exercise of stock options
|
|
|
130,000
|
|
|
|
|
|
|
Outstanding August 31, 2010
|
|
|
56,205,433
|
|
|
|
|
|
|
Stock
options
Under the companys stock option plans, options to purchase
common shares were granted to directors, officers, consultants
and key employees at exercise prices equal to the fair value of
the stock at the date of grant.
The following table summarizes stock option activity for all
stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Life (in Years)
|
|
|
|
(In thousands)
|
|
|
$
|
|
|
|
|
|
Outstanding August 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
300
|
|
|
|
0.78
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding August 31, 2008
|
|
|
300
|
|
|
|
0.78
|
|
|
|
3.8
|
|
Granted
|
|
|
400
|
|
|
|
0.60
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding August 31, 2009
|
|
|
700
|
|
|
|
0.68
|
|
|
|
4.1
|
|
Granted
|
|
|
330
|
|
|
|
1.13
|
|
|
|
5.0
|
|
Exercised
|
|
|
(130
|
)
|
|
|
0.60
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding August 31, 2010
|
|
|
900
|
|
|
|
0.86
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable August 31, 2010
|
|
|
900
|
|
|
|
0.86
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense was recognized in the amount of
$125 (2009 $72; 2008 $57) in the
consolidated statements of income and other comprehensive
income. During fiscal 2010, the company granted an aggregate of
330,000 stock options (of which 40,000 options vested
immediately and 290,000 options vested in August 2010) with
a weighted average fair value of $0.30 using the Black-Scholes
option pricing model.
F-40
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
The value of each option granted is estimated on the date of the
grant using the Black-Scholes option pricing model with the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
$
|
|
$
|
|
$
|
|
Expected dividend yield
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
Risk-free interest rate
|
|
|
2.50%
|
|
|
|
1.73%
|
|
|
|
3.47%
|
|
Expected volatility
|
|
|
25%
|
|
|
|
25%
|
|
|
|
40%
|
|
Expected life
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
5 years
|
|
Warrants
In connection with the purchase of bank indebtedness by 2118769,
a company controlled by Michael Serruya, the president and chief
executive officer of the company, as well as 2118769s
entering into a forbearance agreement and providing a letter of
credit to the companys former lenders, the board of
directors of CoolBrands issued to Michael Serruya, and certain
parties related to Michael Serruya, warrants to purchase up to
5.5 million common shares. The warrants expire in November
2011 and the exercise price is $0.50 per warrant.
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
352
|
|
|
|
1,803
|
|
|
|
993
|
|
Net income from discontinued operations
|
|
|
107
|
|
|
|
199
|
|
|
|
4,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
459
|
|
|
|
2,002
|
|
|
|
5,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
56,130,995
|
|
|
|
56,075,433
|
|
|
|
56,075,433
|
|
Diluted effect of stock awards
|
|
|
4,370,894
|
|
|
|
1,604,023
|
|
|
|
2,146,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,501,889
|
|
|
|
57,679,456
|
|
|
|
58,222,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations basic and diluted
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
0.02
|
|
Income from discontinued operations basic and diluted
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities for the year ended
August 31, 2009, calculated in terms of weighted average
share equivalent of stock options outstanding, included 300,000
stock options with an exercise price of $0.78 that were excluded
from the calculations of diluted loss per share, as their
inclusion would have an anti-dilutive effect.
F-41
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
10 Income
taxes
The effective income tax rate on income is affected from year to
year by the geographic mix of the consolidated income before
income taxes. The following table reconciles income tax expense
(recovery) computed by applying the combined Canadian
federal/provincial statutory rate with the actual income tax
provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
Combined basic Canadian federal and provincial income tax rate
|
|
|
32.30
|
|
|
|
33.17
|
|
|
|
34.38
|
|
Utilization of net operating loss carry-forwards
|
|
|
(32.30
|
)
|
|
|
(33.17
|
)
|
|
|
(34.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the companys deferred tax assets
as at August 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Deferred income tax asset related to losses
|
|
|
|
|
|
|
|
|
Federal net operating and capital loss carry-forwards
|
|
|
17,056
|
|
|
|
18,281
|
|
Valuation allowance
|
|
|
(17,056
|
)
|
|
|
(18,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax asset related to other temporary differences
|
|
|
|
|
|
|
|
|
Deductible temporary differences
|
|
|
8,213
|
|
|
|
9,642
|
|
Valuation allowance
|
|
|
(8,213
|
)
|
|
|
(9,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at August 31, 2010, the company has net operating loss
carry-forwards for federal income tax purposes of approximately
$10,135 in Canada and US$36,563 in the United States expiring as
follows:
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
|
US
|
|
|
|
Losses
|
|
|
Losses
|
|
|
|
$
|
|
|
US$
|
|
|
2026
|
|
|
3,157
|
|
|
|
5,757
|
|
2027
|
|
|
6,485
|
|
|
|
30,087
|
|
2028
|
|
|
493
|
|
|
|
233
|
|
2029
|
|
|
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,135
|
|
|
|
36,563
|
|
|
|
|
|
|
|
|
|
|
11 Retirement
plans
A subsidiary of the company had maintained two defined benefit
pension plans covering substantially all salaried and certain
executive employees. On the acquisition of the subsidiary by the
company in October 2000, all future participation and all
benefits under the plans were frozen. These plans provide
retirement benefits based primarily on employee compensation and
years of service up to the date of acquisition of the subsidiary
by the company. The above mentioned plans are referred to as the
pension benefits.
In addition, the subsidiary entered into an agreement with the
seller of the company to indemnify the cost of retiree health
care and life insurance benefits for salaried employees who had
retired prior to April 1992. Under this agreement, the
subsidiary may elect to prepay its remaining obligation. The
subsidiary did not
F-42
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
provide post-retirement health and life insurance benefits for
employees who retired subsequent to April 1992. This indemnity
agreement is referred to as the other benefits.
The following table reconciles the changes in benefit
obligations and plan assets of the registered defined benefit
plan in 2010 and 2009, and reconciles the funded status to
accrued benefit cost as at August 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
Benefits
|
|
|
Other Benefits
|
|
|
|
$
|
|
|
$
|
|
|
Benefit obligation
|
|
|
|
|
|
|
|
|
Balance August 31, 2007
|
|
|
2,257
|
|
|
|
|
|
Interest cost
|
|
|
127
|
|
|
|
|
|
Actuarial gain
|
|
|
(276
|
)
|
|
|
|
|
Benefit payments
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2008
|
|
|
2,030
|
|
|
|
2,432
|
|
Interest cost
|
|
|
156
|
|
|
|
|
|
Actuarial loss
|
|
|
433
|
|
|
|
|
|
Benefit payments
|
|
|
(98
|
)
|
|
|
|
|
Loss on foreign exchange
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2009
|
|
|
2,549
|
|
|
|
2,432
|
|
Interest cost
|
|
|
136
|
|
|
|
|
|
Actuarial loss
|
|
|
324
|
|
|
|
|
|
Reduction in accrued post-retirement benefits
|
|
|
|
|
|
|
(642
|
)
|
Benefit payments
|
|
|
(97
|
)
|
|
|
|
|
Gain on foreign exchange
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2010
|
|
|
2,853
|
|
|
|
1,790
|
|
|
|
|
|
|
|
|
|
|
Plan assets basic value
|
|
|
|
|
|
|
|
|
Balance August 31, 2007
|
|
|
2,828
|
|
|
|
|
|
Actual return on plan assets
|
|
|
(280
|
)
|
|
|
|
|
Loss on foreign exchange
|
|
|
(4
|
)
|
|
|
|
|
Benefit payments
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2008
|
|
|
2,466
|
|
|
|
|
|
Actual return on plan assets
|
|
|
(427
|
)
|
|
|
|
|
Gain on foreign exchange and other
|
|
|
114
|
|
|
|
|
|
Benefit payments
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2009
|
|
|
2,055
|
|
|
|
|
|
Actual return on plan assets
|
|
|
(25
|
)
|
|
|
|
|
Loss on foreign exchange
|
|
|
(55
|
)
|
|
|
|
|
Benefit payments
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2010
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
The unfunded status for the post-retirement health and life
insurance benefits is as follows:
|
|
|
|
|
|
|
Other
|
|
|
Benefits
|
|
|
$
|
|
Benefit obligations in excess of plan assets
|
|
|
1,790
|
|
|
|
|
|
|
Accrued benefit cost
|
|
|
1,790
|
|
|
|
|
|
|
The following table provides the components of the net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
$
|
|
|
$
|
|
|
Interest cost
|
|
|
136
|
|
|
|
|
|
Expected return on plan assets
|
|
|
(144
|
)
|
|
|
|
|
Recognized net actuarial loss
|
|
|
8
|
|
|
|
|
|
Reduction in accrued post-retirement benefits
|
|
|
|
|
|
|
(642
|
)
|
|
|
|
|
|
|
|
|
|
Net period benefit income
|
|
|
|
|
|
|
(642
|
)
|
|
|
|
|
|
|
|
|
|
The assumptions used in the measurement of the benefit
obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Benefits
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
%
|
|
%
|
|
%
|
|
Benefit obligation discount rate
|
|
|
5.69
|
|
|
|
7.11
|
|
|
|
6.0
|
|
Expected return on plan assets, during the year
|
|
|
7.5
|
|
|
|
7.5
|
|
|
|
7.5
|
|
The companys allocation of pension benefit assets as at
August 31, 2010 and 2009, target allocations for fiscal
2011, and expected long-term rate of return by asset category
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Long-
|
|
|
|
Target
|
|
|
|
|
|
|
|
|
Term Rate of
|
|
|
|
Allocation
|
|
|
Percentage of Plan Assets
|
|
|
Return
|
|
Fiscal Year
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
Asset category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large capitalization equities
|
|
|
26.0
|
|
|
|
32.0
|
|
|
|
34.7
|
|
|
|
2.2
|
|
Mid capitalization equities
|
|
|
14.4
|
|
|
|
12.9
|
|
|
|
11.7
|
|
|
|
1.3
|
|
Small capitalization equities
|
|
|
9.6
|
|
|
|
4.6
|
|
|
|
5.7
|
|
|
|
0.9
|
|
International equities
|
|
|
18.0
|
|
|
|
34.1
|
|
|
|
32.5
|
|
|
|
1.6
|
|
Fixed income bonds
|
|
|
26.0
|
|
|
|
12.4
|
|
|
|
11.6
|
|
|
|
1.0
|
|
Cash, cash equivalents and other
|
|
|
6.0
|
|
|
|
4.0
|
|
|
|
3.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The companys investment strategy is to obtain the highest
possible return commensurate with the level of assumed risk.
Investments are well diversified within each of the major asset
categories.
The expected long-term rate of return is figured by using the
target allocation and expected returns for each asset class as
in the table above. The actual historical returns are also
relevant.
F-44
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
Based on the latest actuarial report as of January 1, 2010,
the company expects that there will be no minimum regulatory
funding requirements that will need to be made during fiscal
2011. The next actuarial report used for funding purposes will
be effective as of January 1, 2011.
Expected benefit payments under the Eskimo Pie
Corporations defined benefit registered pension plan over
future years are as follows:
|
|
|
|
|
|
|
Pension
|
|
|
|
Benefits
|
|
|
|
$
|
|
|
Fiscal year
|
|
|
|
|
2011
|
|
|
107
|
|
2012
|
|
|
106
|
|
2013
|
|
|
125
|
|
2014
|
|
|
125
|
|
2015
|
|
|
125
|
|
2016 2019
|
|
|
721
|
|
The classification of financial instruments as at
August 31, 2010 and 2009 and their respective carrying
values and fair values were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Held-for-
|
|
Held-to-
|
|
Loans and
|
|
Financial
|
|
Carrying
|
|
Fair
|
|
|
Trading
|
|
Maturity
|
|
Receivables
|
|
Liabilities
|
|
Value
|
|
Value
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Cash and cash equivalents
|
|
|
28,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,847
|
|
|
|
28,847
|
|
Short-term investments
|
|
|
35,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,839
|
|
|
|
35,839
|
|
Investments in marketable securities
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181
|
|
|
|
181
|
|
Promissory note receivable
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
213
|
|
Amount due from sale of capital asset
|
|
|
|
|
|
|
|
|
|
|
1,280
|
|
|
|
|
|
|
|
1,280
|
|
|
|
1,280
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,724
|
|
|
|
2,724
|
|
|
|
2,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Held-for-
|
|
Held-to-
|
|
Loans and
|
|
Financial
|
|
Carrying
|
|
Fair
|
|
|
Trading
|
|
Maturity
|
|
Receivables
|
|
Liabilities
|
|
Value
|
|
Value
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Cash and cash equivalents
|
|
|
17,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,907
|
|
|
|
17,907
|
|
Short-term investments
|
|
|
43,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,991
|
|
|
|
43,991
|
|
Investments in marketable securities
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194
|
|
|
|
194
|
|
Promissory note receivable and accrued interest
|
|
|
|
|
|
|
4,396
|
|
|
|
|
|
|
|
|
|
|
|
4,396
|
|
|
|
4,396
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
85
|
|
|
|
85
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,276
|
|
|
|
3,276
|
|
|
|
3,276
|
|
Fair
value
Fair value is the amount of consideration that would be agreed
in an arms-length transaction between knowledgeable,
willing parties who are under no compulsion to act. The company
uses the following methods
F-45
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
and assumptions to establish the fair value for each class of
financial instrument for which carrying amounts are included in
the consolidated balance sheet as follows:
Held-for-trading
Cash and cash equivalents and short-term investments
The carrying amount of cash and cash equivalents is recorded at
the fair value based on the amount of funds held in the
companys bank accounts. Cash and cash equivalents invested
in short-term investments are valued based on quoted market
prices provided by the companys investment managers.
Investments in marketable securities
The carrying amount is recorded at fair value based on quoted
market prices provided by the investment manager.
Held
to maturity
Promissory note receivable and accrued interest
The carrying amount is recorded at amortized cost using the
effective interest method.
Loans
and receivables
Accounts receivable
The carrying amount is a reasonable approximation of the fair
value due to the short-term nature of these financial
instruments.
Other
financial liabilities
Accounts payable and accrued liabilities
The carrying amounts included in the consolidated balance sheets
are measured at amortized cost, which approximates fair value
due to the short-term nature of accounts payable and accrued
liabilities.
The company records all transaction costs for financial assets
and financial liabilities in the consolidated statements of
income and other comprehensive income as incurred.
All financial instruments that use the fair market value
hierarchy are based on level 1 fair value measurement that
reflect unadjusted quote prices in active markets for identical
assets or liabilities.
Risk
arising from financial instruments
The company does not use financial derivatives.
Foreign
exchange risk and sensitivity on foreign exchange
fluctuations
The company holds financial assets and financial liabilities and
incurs expenses and earns revenue denominated in US dollars.
F-46
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
Included in the undernoted accounts are the following balances
denominated in US dollars:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Cash and cash equivalents
|
|
|
675
|
|
|
|
115
|
|
Short-term investments
|
|
|
1,752
|
|
|
|
4,075
|
|
Interest receivable
|
|
|
|
|
|
|
750
|
|
Current assets of discontinued operations
|
|
|
50
|
|
|
|
128
|
|
Other assets
|
|
|
1,370
|
|
|
|
3,427
|
|
Current liabilities of discontinued operations
|
|
|
(2,307
|
)
|
|
|
(2,926
|
)
|
Other liabilities
|
|
|
(1,691
|
)
|
|
|
(2,323
|
)
|
|
|
|
|
|
|
|
|
|
Net US dollar position
|
|
|
(151
|
)
|
|
|
3,246
|
|
Non-monetary assets and liabilities
|
|
|
1,498
|
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
|
Net US dollar monetary position
|
|
|
1,347
|
|
|
|
5,299
|
|
|
|
|
|
|
|
|
|
|
A 1% strengthening/weakening of the Canadian dollar against the
US dollar as at August 31, 2010 would have
decreased/increased net income for the year ended
August 31, 2010 and shareholders equity as at
August 31, 2010 by $14. This analysis assumes that all
other variables remain constant. The company does not use
derivative instruments to reduce its exposure to foreign
exchange risk.
Interest
rate risk and sensitivity analysis on interest rate
changes
The company is exposed to interest rate risk arising from its
investment of its cash resources in interest-bearing securities.
Reductions in interest rates would reduce the amount of interest
revenue earned by the company.
As at August 31, 2010, the weighted average interest rate
earned on invested funds was 0.84%. A 100 basis point
change in this interest rate would result in a change in income
of $645.
Credit
risk
The company is exposed to credit risk, as certain of its cash
funds are invested in marketable securities issued by financial
institutions and commercial enterprises with maturities
extending between one and nine months. The company attempts to
mitigate credit risk by investing only in institutions that
provide strong liquidity and by restricting investments to less
than one-year maturities.
|
|
13
|
Related
party transactions
|
The following transactions are in the normal course of business
and are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
The party is considered related as one of the companys
directors is also a director of the related party.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
$
|
|
$
|
|
$
|
|
Rent paid in respect of shared premises
|
|
|
48
|
|
|
|
48
|
|
|
|
48
|
|
Expenses recovered in respect of shared employee
|
|
|
30
|
|
|
|
36
|
|
|
|
30
|
|
There were no outstanding amounts receivable or amounts payable
to related parties as at August 31, 2010, 2009 and 2008.
F-47
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
Litigation
On October 31, 2006, Capricorn Investors III, L.P.
(Capricorn), the parent of Americana Foods Corporation, filed a
complaint in the Supreme Court of the State of New York (the
court) against CoolBrands, Integrated Brands, Inc., CBA Foods
LLC, CB Americana LLC and certain officers and directors of
CoolBrands asserting allegations against the defendants for
breaches of contract, breach of fiduciary duty, fraud and
conspiracy and seeked injunctive relief and damages of over
$60 million.
Following several successful decisions rendered by the court in
favour of the company, on December 1, 2009, CoolBrands and
certain related entities entered into a settlement agreement
with Capricorn relating to this lawsuit. All claims in the
lawsuit were dismissed with prejudice. Pursuant to the
settlement agreement, CoolBrands agreed to make a payment to
Capricorn of US$1,050. The companys insurer agreed to
contribute 50% of the settlement amount. The net amount of
US$525 has been paid and was expensed in the companys
second quarter fiscal 2010 financial results.
Legal
matters
The company is also a party to other legal proceedings and
disputes with former franchisees and others, which arise in the
ordinary course of business. In the opinion of the company, it
is unlikely that the liabilities, if any, arising from the legal
proceedings and disputes will have a material adverse effect on
the consolidated financial position of the company. The amount
of loss, if any, cannot be determined at this time.
Environmental
liabilities
In February 1992, a subsidiary of the company entered into an
agreement with the former owner of the subsidiary whereby the
former owner agreed to indemnify the subsidiary for damages or
expenses resulting from environmental contamination caused by
the former owner and its predecessors on the subsidiarys
owned property located in New Jersey. Litigation was commenced
by the company to demand that the former owner abide by the
terms of the agreement. Prior to the sale of the property, as
described in note 8, the company was liable for the costs
associated with remediating the environmental contamination on
the property. The cost of such remediation could not be
reasonably estimated at this time. The subsidiary has provided a
self-guarantee to the State of New Jersey in the amount of $370
to cover potential clean up costs.
Subsequent to August 31, 2010, the company entered into a
settlement agreement and mutual release with the former owner of
the subsidiary that included, among other matters, a release by
the company of any claims made by the company against the former
owner for damages related to the environmental contamination.
As a result of the sale or closure of the operating businesses
of the company in 2007, any remaining assets and liabilities of
each of these businesses have been classified as current assets
and current liabilities of discontinued operations on each of
the consolidated balance sheets as at August 31, 2010 and
2009 and the components of their operating results have been
included in income from discontinued operations on each of the
consolidated statements of operations. As at August 31,
2010, the company has one segment.
|
|
16
|
Proposed
merger with Swisher International, Inc.
|
On August 18, 2010, the company announced that it had
agreed to enter into an agreement to merge with a US private
company, Swisher International, Inc. (Swisher), a full-service
hygiene solutions provider based in Charlotte, North Carolina.
The transaction included a court-approved plan of arrangement,
was approved by shareholders at a meeting on October 27,
2010 and closed on by November 2, 2010. Under the
transaction, all
F-48
CoolBrands
International Inc.
Notes to
Consolidated Financial
Statements (Continued)
of the outstanding common shares of Swisher were exchanged for
57,789,630 CoolBrands common shares. Following completion of the
transaction, the current CoolBrands shareholders hold
approximately 52% of the merged company, on a fully diluted
basis, while current shareholders of Swisher hold approximately
48%. No accounting recognition has been given to this
transaction in these financial statements.
F-49
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM 13
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
|
|
|
|
|
|
|
Amount
|
|
|
Securities and Exchange Commission Registration Fee
|
|
$
|
28,859
|
|
Legal Fees and Expenses
|
|
|
150,000
|
|
Accounting Fees and Expenses
|
|
|
135,000
|
|
Miscellaneous Expenses
|
|
|
150,000
|
|
|
|
|
|
|
Total
|
|
$
|
463,859
|
|
|
|
|
|
|
All amounts are estimates, other than the SECs
registration fee.
We are paying all expenses of the offering listed above. No
portion of these expenses will be borne by the selling
stockholders. The selling stockholders, however, will pay all
underwriting discounts and selling commissions, if any.
ITEM 14
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are a corporation organized under the laws of the State of
Delaware. Section 102(b)(7) of the General Corporation Law
of the State of Delaware permits a corporation to provide in its
certificate of incorporation that a director of the corporation
shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of
the directors duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful payments of dividends or
unlawful stock repurchases, redemptions or other distributions
or (iv) for any transaction from which the director derived
an improper personal benefit. Our certificate of incorporation
provides that a director shall not be liable to us or our
stockholders, except to the extent such exemption from liability
or limitation thereof is not permitted under the General
Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of
Delaware provides that a corporation has the power to indemnify
a director, officer, employee or agent of the corporation and
certain other persons serving at the request of the corporation
in related capacities against amounts paid and expenses
(including attorneys fees) incurred in connection with an
action or proceeding (other than an action or proceeding brought
by or in the right of the corporation) to which such person is
or is threatened to be made a party by reason of such position,
if such person shall have acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the
best interest of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe
his conduct was unlawful. Section 145 of the General
Corporation Law of the State of Delaware further provides that,
in the case of actions brought by or in the right of the
corporation, such corporation has the power to indemnify such
person only against expenses (including attorneys fees)
incurred in connection with the defense or settlement of an
action or proceeding to which such person is or is threatened to
be made a party by reason of such position, if such person shall
have acted in good faith and in a manner the person reasonably
believes to be in or not opposed to the best interests of the
corporation, and no indemnification shall be made with respect
to any matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent
that the adjudicating court determines that such indemnification
is proper under the circumstances. Section 145 further
provides that, to the extent a present or former director of the
corporation has been successful on the merits or otherwise in
any such action, suit or proceeding, or in defense of any claim,
issue or matter therein, such person shall be indemnified
against expenses (including attorneys fees) actually and
reasonably incurred by such person in connection therewith. It
also provides that the expenses (including attorneys fees)
incurred by an officer or director of the corporation in
defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall
ultimately be
II-1
determined that such person is not entitled to be indemnified by
the corporation as provided by Section 145 of the General
Corporation Law of the State of Delaware. Such expenses
(including attorneys fees) incurred by former directors
and officers or other employees and agents of the corporation or
by persons serving at the request of the corporation as
directors, officers, employees or agents of another corporation,
partnership, joint venture, trust or other enterprise may be so
paid upon such terms and conditions, if any, as the corporation
deems appropriate.
Our bylaws provide that we will indemnify our current and former
directors and officers and persons who, while serving as a
director or officer of Swisher Hygiene, act or acted at our
request as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys fees)
reasonably incurred, to the fullest extent permitted by the
General Corporation Law of the State of Delaware. In addition,
our bylaws provide that we will pay the expenses (including
attorneys fees) incurred by any such person in defending
any proceeding in advance of its final disposition, provided
that such payment will be made only upon the receipt of an
undertaking by such person to repay all amounts if it is
ultimately determined that such person is not entitled to
indemnification.
At present, there is no pending litigation or proceeding
involving any of our directors or officers in which
indemnification or advancement is sought. We are not aware of
any threatened litigation that may result in claims for
advancement or indemnification.
We have been advised that in the opinion of the SEC, insofar as
indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and other persons
pursuant to the foregoing provisions, or otherwise, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event a
claim for indemnification against such liabilities (other than
payment of expenses incurred or paid by a director or officer in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or other person in connection
with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
ITEM 15
RECENT SALES OF UNREGISTERED SECURITIES
On November 1, 2010, Swisher Hygiene completed its
Redomestication to Delaware from Canada, where it had been a
publicly-traded corporation, listed on the TSX under the name
CoolBrands International Inc. and trading under the symbol
COB. On November 2, 2010, Swisher International
completed the Merger with Swisher Hygiene. In the Merger, the
former stockholders of Swisher International received
57,789,630 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 48% ownership interest
in Swisher Hygiene, in exchange for all of the issued and
outstanding shares of Swisher International. The stockholders of
CoolBrands retained 52% of the company. As a result of the
Merger, Swisher International is a wholly-owned subsidiary of
Swisher Hygiene, which continues to trade on the TSX under the
symbol SWI.
On November 1, 2010, in connection with the
Redomestication, Swisher Hygiene issued the following securities:
(a) 56,225,433 shares of Swisher Hygiene common stock
to approximately 338 holders of CoolBrands common stock in
exchange for 56,225,433 shares of CoolBrands common stock;
(b) options to purchase up to 880,000 shares of
Swisher Hygiene common stock to six persons, in exchange for
options to purchase 880,000 shares of CoolBrands common
stock; and
(c) warrants to purchase 5,500,000 shares of common
stock of Swisher Hygiene to one person, in exchange for warrants
to purchase 5,500,000 shares of common stock of CoolBrands.
II-2
On November 2, 2010, in connection with the Merger, Swisher
Hygiene also issued the following securities:
(d) 57,789,630 shares of Swisher Hygiene common stock
to 11 former stockholders of Swisher International in exchange
for 1,212,890 shares of Swisher International common stock;
and
(e) On November 8, 2010, in connection with the
acquisition of certain assets of Gateway ProClean, Inc., Swisher
Hygiene issued a promissory note to Gateway ProClean, Inc.,
which note is convertible for up to 1,312,864 shares of our
common stock; and
(f) On December 7, 2010, in connection with the
acquisition certain assets of Lasfam Investments Inc., Swisher
Hygiene issued a promissory note to Lasfam Investments Inc.,
which note is convertible for up to 1,027,122 shares of our
common stock.
No underwriters were involved in any of the issuances of
securities described in paragraphs (a) through
(f) above, all of which were exempt from the registration
requirements of the Securities Act. The securities described in
paragraphs (a) through (c) were issued in accordance
with Section 3(a)(10) of the Securities Act following a
hearing at which the Ontario Superior Court of Justice
(Commercial List), upon notice duly provided to the security
holders of CoolBrands and upon approval of the plan of
arrangement by such security holders at a meeting held for that
purpose, determined that the transactions described in the plan
of arrangement were fair to the security holders of CoolBrands,
including all of the persons to whom the securities were issued.
Before the hearing, which was open to all CoolBrands security
holders, the Ontario Superior Court of Justice (Commercial List)
was informed that Swisher Hygiene intended to rely on the
Courts fairness determination to conduct the exchange
transaction without registration under the Federal securities
laws of the U.S. Except in the case of securities issued to
affiliates of Swisher Hygiene or former affiliates of
CoolBrands, the securities may be resold without restriction.
The issuance of the securities described in subparagraphs (d)
through (f) above were exempt from the registration
requirements of the Securities Act afforded by Section 4(2)
thereof. The securities issued in this transaction are
restricted and may not be resold except pursuant to an effective
registration statement filed under the Securities Act or
pursuant to a valid exemption from the registration requirements
of the Securities Act.
A total of 55,789,632 of the 57,789,630 shares of Swisher
Hygiene common stock issued in the Merger to former stockholders
of Swisher International, Inc. are subject to
lock-up
agreements whereby such shares cannot be sold or transferred for
the period ending upon the earlier of (i) the public
release of the companys consolidated earnings for fiscal
year 2011 or (ii) March 31, 2012.
ITEM 16
EXHIBITS
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, among CoolBrands International
Inc., CoolBrands International (Nevada), Inc., Swisher
International, Inc. and Steven R. Berrard, dated as of
August 17, 2010.*
|
|
2
|
.2
|
|
Plan of Arrangement, dated November 1, 2010.*
|
|
3
|
.1
|
|
Certificate of Corporate Domestication of CoolBrands
International Inc., dated November 1, 2010.*
|
|
3
|
.2
|
|
Certificate of Incorporation of Swisher Hygiene Inc.*
|
|
3
|
.3
|
|
Bylaws of Swisher Hygiene Inc.*
|
|
5
|
.1
|
|
Opinion of Akerman Senterfitt.
|
|
10
|
.1
|
|
Credit Agreement by and between Swisher International, Inc. and
Wachovia Bank, National Association, dated November 14,
2005 (filed as Exhibit 10.1 to the Registrants
Registration Statement on Form 10, as amended by Amendment
No. 1, filed with the SEC on December 14, 2010, and
incorporated herein).
|
|
10
|
.2
|
|
Security Agreement by and among Swisher International, Inc. and
certain subsidiaries of Swisher International, Inc., dated as of
November 14, 2005.*
|
II-3
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.3
|
|
First Amendment to Credit Agreement by and between Swisher
International, Inc. and Wachovia Bank, National Association,
dated as of April 26, 2006.*
|
|
10
|
.4
|
|
Second Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc. and Wachovia Bank, National
Association, dated as of September 8, 2006.*
|
|
10
|
.5
|
|
Third Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc. and Wachovia Bank, National
Association, dated as of March 21, 2008.*
|
|
10
|
.6
|
|
Fourth Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc. and Wachovia Bank, National
Association, dated June 25, 2008.*
|
|
10
|
.7
|
|
Fifth Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc., Wachovia Bank, National
Association, and other persons party thereto, dated
June 30, 2009.*
|
|
10
|
.8
|
|
Sixth Amendment to Credit Agreement by and between Swisher
International, Inc., Wachovia Bank, National Association and
other persons party thereto, dated November 18, 2009.*
|
|
10
|
.9
|
|
Credit Agreement by and between HB Service, LLC and Wachovia
Bank, National Association, dated as of June 25, 2008.*
|
|
10
|
.10
|
|
First Amendment and Waiver to Credit Agreement by and between HB
Service, LLC, Wachovia Bank, National Association and other
persons party thereto, dated as of June 30, 2009.*
|
|
10
|
.11
|
|
Second Amendment to Credit Agreement by and between HB Service,
LLC, Wachovia Bank, National Association, and other persons
party thereto, dated November 18, 2009.*
|
|
10
|
.12
|
|
Omnibus Amendment Agreement, Limited Consent and Waiver by and
between Swisher International, Inc., HB Service, LLC, Wells
Fargo Bank, National Association and other persons party
thereto, dated August 13, 2010.*
|
|
10
|
.13
|
|
Omnibus Amendment Agreement, Limited Consent and Waiver by and
between Swisher International, Inc., HB Service, LLC, Wells
Fargo Bank, National Association and other persons party
thereto, dated October 28, 2010.*
|
|
10
|
.14
|
|
Unconditional Guaranty by and among Swisher International, Inc.,
H. Wayne Huizenga and Wachovia Bank, National Association, dated
June 25, 2008.*
|
|
10
|
.15
|
|
Unconditional Guaranty by and among HB Service, LLC, H. Wayne
Huizenga and Wachovia Bank, National Association, dated
June 25, 2008.*
|
|
10
|
.16
|
|
Promissory Note, dated May 26, 2010, as amended, in the
principal amount of $21,445,000 to Royal Palm Mortgage Group,
LLC.*
|
|
10
|
.17
|
|
Amended and Restated Security Agreement by and between H. Wayne
Huizenga and Wachovia Bank, National Association, dated January
2010.*
|
|
10
|
.18
|
|
Capital Contribution Agreement by and among H. Wayne Huizenga,
Steven R. Berrard and Swisher International, Inc., dated
July 13, 2010.*
|
|
10
|
.19
|
|
Form of
Lock-Up
Agreement.*
|
|
10
|
.20
|
|
Promissory Note, dated August 9, 2010, in the principal
amount of $2,000,000 to Royal Palm Mortgage Group, LLC.*
|
|
10
|
.21
|
|
Promissory Note, dated August 9, 2010, in the principal
amount of $1,500,000 to Royal Palm Mortgage Group, LLC.*
|
|
10
|
.22
|
|
Form of Swisher Hygiene Inc. 2010 Stock Incentive Plan.*
|
|
10
|
.23
|
|
Omnibus Amendment Agreement, Limited Consent and Waiver by and
between Swisher International, Inc., HB Service, LLC, Wells
Fargo Bank, National Association and other persons party
thereto, dated November 5, 2010.*
|
|
16
|
.1
|
|
Accountants Letter.**
|
|
21
|
.1
|
|
Subsidiaries of Swisher Hygiene Inc.
|
|
23
|
.1
|
|
Consent of Scharf Pera & Co., PLLC.
|
|
23
|
.2
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
23
|
.3
|
|
Consent of Akerman Senterfitt (included in Exhibit 5.1).
|
|
24
|
.1
|
|
Power of Attorney (included in signature page).**
|
|
|
|
* |
|
Filed as the exhibit number indicated above to the
Registrants Registration Statement on Form 10, filed
with the SEC on November 9, 2010. |
II-4
ITEM 17
UNDERTAKINGS
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) For determining liability under the Securities Act to
any purchaser, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to
an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in
the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
(5) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in
the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering
of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any
II-5
of the following communications, the undersigned registrant will
be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Charlotte, state of North Carolina,
on December 14, 2010.
SWISHER HYGIENE INC.
|
|
|
|
By:
|
/s/ Steven
R. Berrard
|
|
|
|
|
Title:
|
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Steven
R. Berrard
Steven
R. Berrard
|
|
President, Chief Executive Officer,
and Director
(Principal Executive Officer)
|
|
December 14, 2010
|
|
|
|
|
|
*
Hugh
H. Cooper
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
December 14, 2010
|
|
|
|
|
|
*
Michael
Kipp
|
|
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
|
|
December 14, 2010
|
|
|
|
|
|
*
H.
Wayne Huizenga
|
|
Chairman of the Board
|
|
December 14, 2010
|
|
|
|
|
|
*
David
Braley
|
|
Director
|
|
December 14, 2010
|
|
|
|
|
|
*
John
Ellis Bush
|
|
Director
|
|
December 14, 2010
|
|
|
|
|
|
*
James
E. OConnor
|
|
Director
|
|
December 14, 2010
|
|
|
|
|
|
*
David
Prussky
|
|
Director
|
|
December 14, 2010
|
|
|
|
|
|
*
Ramon
A. Rodriguez
|
|
Director
|
|
December 14, 2010
|
|
|
|
|
|
*
Michael
Serruya
|
|
Director
|
|
December 14, 2010
|
* by power of attorney.
II-7
EXHIBIT INDEX
The following exhibits have been filed as part of this
Registration Statement on
Form S-1.
|
|
|
|
|
Exhibit
|
|
|
|
Number
|
|
|
Exhibit Description
|
|
|
5.1
|
|
|
Opinion of Akerman Senterfitt.
|
|
21.1
|
|
|
Subsidiaries of Swisher Hygiene Inc.
|
|
23.1
|
|
|
Consent of Scharf Pera & Co., PLLC.
|
|
23.2
|
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
23.3
|
|
|
Consent of Akerman Senterfitt (included in Exhibit 5.1).
|