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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 001-35067

 

 

SWISHER HYGIENE INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   27-3819646

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

4725 Piedmont Row Drive, Suite 400

Charlotte, North Carolina

  28210
(Address of Principal Executive Offices)   (Zip Code)

(704) 364-7707

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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:

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Number of shares outstanding of each of the registrant’s classes of Common Stock at November 11, 2011: 173,975,175 shares of Common Stock, $0.001 par value per share.

 

 

 


Table of Contents

SWISHER HYGIENE INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION      3   

ITEM 1. FINANCIAL STATEMENTS

     3   

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     20   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     35   

ITEM 4. CONTROLS AND PROCEDURES

     35   
PART II. OTHER INFORMATION      35   

ITEM 1. LEGAL PROCEEDINGS

     35   

ITEM 1A. RISK FACTORS

     35   

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     35   

ITEM 6. EXHIBITS

     36   

EX-31.1

  

EX-31.2

  

EX-32.1

  

EX-32.2

  

EX-101 INSTANCE DOCUMENT

  

EX-101 SCHEMA DOCUMENT

  

EX-101 CALCULATION LINKBASE DOCUMENT

  

EX-101 LABELS LINKBASE DOCUMENT

  

EX-101 PRESENTATION LINKBASE DOCUMENT

  

EX-101 DEFINITION LINKBASE DOCUMENT

  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SWISHER HYGIENE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS
     Balance at  
     September 30,
2011
    December 31,
2010
 
ASSETS     

Current assets

    

Cash and cash equivalents

   $ 83,785,303      $ 38,931,738   

Restricted cash

     —          5,193,333   

Accounts receivable (net of allowance for doubtful accounts of approximately $447,000 at September 30, 2011 and $334,000 at December 31, 2010)

     32,204,831        7,068,629   

Inventory

     15,839,729        2,968,076   

Other assets

     2,951,952        894,719   
  

 

 

   

 

 

 

Total current assets

     134,781,815        55,056,495   

Property and equipment, net

     64,516,687        11,324,055   

Goodwill

     165,992,839        29,660,309   

Other intangibles, net

     81,610,895        7,668,805   

Other noncurrent assets

     5,109,631        2,524,598   
  

 

 

   

 

 

 
   $ 452,011,867      $ 106,234,262   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities

    

Accounts payable, accrued expenses, and other current liabilities

   $ 29,904,662      $ 9,335,932   

Short term obligations

     13,346,282        13,378,710   

Advances from shareholder

     2,000,000        2,000,000   
  

 

 

   

 

 

 

Total current liabilities

     45,250,944        24,714,642   

Long term obligations

     47,899,501        31,028,992   

Deferred income tax liabilities

     4,446,139        1,700,000   

Other long term liabilities

     3,390,995        2,763,051   
  

 

 

   

 

 

 

Total noncurrent liabilities

     55,736,635        35,492,043   

Commitments and contingencies

    

Equity

    

Swisher Hygiene Inc. stockholders’ equity

    

Preferred stock, par value $0.001, authorized 10,000,000 shares; no shares issued or outstanding at September 30, 2011 and December 31, 2010

     —          —     

Common stock, par value $0.001, authorized 600,000,000 shares; 173,864,701 and 114,015,063 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

     173,865        114,015   

Additional paid-in capital

     373,872,794        54,725,897   

Accumulated deficit

     (23,088,295     (8,996,759

Accumulated other comprehensive income

     65,924        73,985   
  

 

 

   

 

 

 

Total Swisher Hygiene Inc. stockholders’ equity

     351,024,288        45,917,138   

Non-controlling interest

     —          110,439   
  

 

 

   

 

 

 

Total equity

     351,024,288        46,027,577   
  

 

 

   

 

 

 
   $ 452,011,867      $ 106,234,262   
  

 

 

   

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

3


Table of Contents

SWISHER HYGIENE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Revenue

        

Product

   $ 43,424,055      $ 9,580,267      $ 86,827,789      $ 26,346,762   

Service

     23,347,357        4,341,867        56,468,375        13,142,945   

Franchise

     433,583        2,138,945        2,981,209        6,463,863   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     67,204,995        16,061,079        146,277,373        45,953,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses

        

Cost of sales

     25,817,824        6,107,686        53,116,139        16,870,196   

Route expenses

     14,618,918        3,511,409        34,892,302        9,859,640   

Selling, general, and administrative

     22,631,120        7,521,046        53,847,059        20,895,398   

Acquisition and merger expenses

     644,092        1,425,855        4,735,328        1,425,855   

Depreciation and amortization

     6,879,607        1,272,266        15,671,983        3,399,004   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     70,591,561        19,838,262        162,262,811        52,450,093   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (3,386,566     (3,777,183     (15,985,438     (6,496,523
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (323,584     (357,897     (6,289,313     (1,003,636
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (3,710,150     (4,135,080     (22,274,751     (7,500,159
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

     46,384        —          (8,176,480 )     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (3,756,534   $ (4,135,080   $ (14,098,271   $ (7,500,159
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share

        

Basic and diluted

   $ (0.02   $ (0.07   $ (0.09   $ (0.13
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares used in the computation of loss per share

        

Basic and diluted

     173,429,586        57,908,074        154,025,525        57,878,049   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

4


Table of Contents

SWISHER HYGIENE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
     Common Stock      Additional
Paid-In Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
    Swisher
Hygiene Inc.
Shareholders’
Equity
    Non-
controlling
Interest
    Total Equity  
     Shares      Amount                

Balance as of December 31, 2010

     114,015,063       $ 114,015       $ 54,725,897       $ (8,996,759   $ 73,985      $ 45,917,138      $ 110,439      $ 46,027,577   

Shares issued in connection with private placements

     34,119,643         34,120         191,202,395             191,236,515          191,236,515   

Shares issued in connection with the acquisition of Choice

     8,281,920         8,282         48,772,244             48,780,526          48,780,526   

Shares issued in connection with acquisitions

     7,359,435         7,359         49,614,393             49,621,752          49,621,752   

Shares issued in connection with and purchases of property and equipment and to settle liabilities

     360,782         361         1,182,166             1,182,527          1,182,527   

Shares issued for non-controlling interest

     25,000         25         103,679         6,735          110,439        (110,439     —     

Conversion of promissory notes payable

     3,497,858         3,498         22,030,282             22,033,780          22,033,780   

Stock based compensation

           2,881,227             2,881,227          2,881,227   

Exercise of stock options and warrants

     6,205,000         6,205         3,360,511             3,366,716          3,366,716   

Foreign currency translation adjustment

                (8,061     (8,061       (8,061

Net loss before purchase of non-controlling interest

              (14,098,271       (14,098,271       (14,098,271
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2011

     173,864,701       $ 173,865       $ 373,872,794       $ (23,088,295   $ 65,924      $ 351,024,288     $ —        $ 351,024,288  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

5


Table of Contents

SWISHER HYGIENE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      Nine Months Ended
September 30,
 
     2011     2010  

Cash used in operating activities

    

Net loss

   $ (14,098,271   $ (7,500,159

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     15,671,983        3,399,004   

Stock based compensation

     2,881,227        —     

Loss on fair value measurements, net

     4,766,900        —     

Deferred income tax liabilities

     (8,847,698     —     

Changes in working capital components:

    

Accounts receivable

     (9,889,306     (268,305

Inventory

     (3,665,025     (730,566

Other assets and noncurrent assets

     (1,568,845     (142,451

Accounts payable, accrued expenses, and other liabilities

     (2,099,871     4,294,392   
  

 

 

   

 

 

 

Cash used in operating activities

     (16,848,906     (948,085
  

 

 

   

 

 

 

Cash used in investing activities

    

Purchases of property and equipment

     (13,352,225     (3,657,192

Acquisitions, net of cash acquired and share issuance costs

     (94,929,102     (890,000

Restricted cash

     5,193,333        —     
  

 

 

   

 

 

 

Cash used in investing activities

     (103,087,994     (4,547,192
  

 

 

   

 

 

 

Cash provided by financing activities

    

Proceeds from private placements, net of issuance costs

     191,334,372        —     

Principal payments on acquired Choice debt

     (39,219,160     —     

Proceeds from line of credit and equipment financing loans, net of issuance costs

     41,571,527        —     

Payoff of lines of credit

     (27,841,024     —     

Principal payments on debt

     (4,421,966     (1,881,447

Proceeds from exercise of stock options and warrants

     3,366,716        —     

Payment of shareholder advance

     —          (800,000

Proceeds from advances from shareholders

     —          7,550,000   
  

 

 

   

 

 

 

Cash provided by financing activities

     164,790,465        4,868,553   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     44,853,565        (626,724

Cash and cash equivalents at the beginning of the period

     38,931,738        1,270,327   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   $ 83,785,303      $ 643,603   
  

 

 

   

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

6


Table of Contents

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 — BUSINESS DESCRIPTION

Principal Operations

Swisher Hygiene Inc. and its wholly-owned subsidiaries (the “Company” or “we” or “our”) provide essential hygiene and sanitation 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 essential 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 involve providing our customers with: (i) 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, bar towels and linens; (iii) manual cleaning of their facilities; and (iv) solid waste collection services. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries. In addition, our solid waste collection services provide services primarily to commercial and residential customers through contracts with municipalities or other agencies.

The Company has company owned operations and 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.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company’s Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of their financial condition, results of operations, and cash flows for the periods presented. The information at December 31, 2010 in the Company’s Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheet included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 31, 2011. The Company’s 2010 Annual Report on Form 10-K, together with the information included in such report, is referred to in this quarterly report as the “2010 Annual Report.” This quarterly report should be read in conjunction with the 2010 Annual Report.

All material intercompany balances and transactions have been eliminated in consolidation. Certain adjustments have been made to conform prior periods to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 Condensed Consolidated Financial Statements. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.

The Company’s significant accounting policies are discussed in Note 2 of the Notes to Consolidated Financial Statements in the 2010 Annual Report. Any significant changes to those policies or new significant policies are described below.

Acquisition and merger expenses

Acquisition and merger expenses include costs directly related to the acquisition of two of our franchises and twenty independent businesses during the three months ended September 30, 2011 and the acquisition of nine of our franchises and forty-five independent businesses during the nine months ended September 30, 2011. Acquisition and merger expenses also include costs directly-related to the merger with CoolBrands International, Inc. (“CoolBrands”) as discussed in Note 1 of our 2010 Annual Report. These costs include third party due diligence, legal, accounting, and professional service expenses.

 

7


Table of Contents

Segments

On March 1, 2011, the Company completed its acquisition of Choice Environmental Services, Inc. (“Choice”), a Florida based company that provides a complete range of solid waste and recycling collection, transportation, processing and disposal services. As a result of the acquisition of Choice, the Company now has two segments: (1) Hygiene and (2) Waste. The Company’s hygiene segment 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’s waste segment primarily consists of the operations of Choice and acquisitions of solid waste collection businesses. Prior to the acquisition of Choice, the Company managed, allocated resources, and reported in one segment, Hygiene. See Note 14 for segment disclosures.

Adoption of Newly Issued Accounting Pronouncements

Revenue Recognition: In October 2009, the FASB issued new standards for multiple-deliverable revenue arrangements. These new standards affect the determination of when individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. In addition, these new standards modify the manner in which the transaction consideration is allocated across separately identified deliverables, eliminate the use of the residual value method of allocating arrangement consideration and require expanded disclosure. These new standards became effective for multiple-element arrangements entered into or materially modified on or after January 1, 2011. Earlier application was permitted with required transition disclosures based on the period of adoption. We adopted these standards for multiple-element arrangements entered into or materially modified on or after January 1, 2011. The adoption of this accounting standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Goodwill: In December 2010, the FASB issued new standards defining when step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts should be performed and modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For reporting units with zero or negative carrying amounts an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The standards are effective for fiscal years and interim periods within those years, beginning after December 15, 2010 and were effective for the Company on January 1, 2011. The adoption of this accounting standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Business Combinations: In December 2010, the FASB issued new standards that clarify that if comparative financial statements are presented the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The standards are effective prospectively for material (either on an individual or aggregate basis) business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company has included the required disclosures in Note 3.

Newly Issued Accounting Pronouncements

Goodwill: In September 2011, the FASB issued new standards that allow an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. In addition an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. These standards are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early application is permitted. We are currently evaluating the effect of these standards on our Consolidated Financial Statements.

Comprehensive Income: In June 2011, the FASB issued new standards to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This standard eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. These standards are to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early application is permitted. We are currently evaluating the effect of these standards on our Consolidated Financial Statements.

 

8


Table of Contents

Fair Value Measurements: In May 2011, the FASB issued new standards clarifying the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements and expands fair value disclosures. These standards are to be applied prospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early application is not permitted. We are currently evaluating the effect of these standards on our Consolidated Financial Statements.

NOTE 3 — ACQUISITIONS

Choice Acquisition

On February 13, 2011, we entered into an Agreement and Plan of Merger (the “Choice Agreement”) with Swsh Merger Sub, Inc., a Florida corporation and wholly-owned subsidiary of the Company, Choice, and other parties, as set forth in the Choice Agreement. The Choice Agreement provided for the acquisition of Choice by the Company by way of merger.

In connection with the merger with Choice, on February 23, 2011, we entered into an agency agreement, which the agents agreed to market, on a best efforts basis 12,262,500 subscription receipts (“Subscription Receipts”) at a price of $4.80 per Subscription Receipt for gross proceeds of up to $58,859,594. Each Subscription Receipt entitled the holder to acquire one share of our common stock, without payment of any additional consideration, upon completion of our acquisition of Choice.

On March 1, 2011, we closed the acquisition of Choice and issued 8,281,920 shares of our common stock to the former shareholders of Choice and assumed $40,941,484 of debt, which $39,219,160 was paid down with proceeds from the private placement of the Subscription Receipts. In addition, certain shareholders of Choice received $5,700,000 in cash and warrants to purchase an additional 918,076 shares at an exercise price of $6.21, which expired on March 31, 2011 and were not exercised.

On March 1, 2011, in connection with the closing of the acquisition of Choice, the 12,262,500 Subscription Receipts were exchanged for 12,262,500 shares of our common stock. We agreed to use commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock underlying the Subscription Receipts. If the registration statement was not filed or declared effective within specified time periods, or if the registration statement had ceased to be effective for a period of time exceeding certain grace periods, between the date such shares of common stock were issued and November 10, 2011, the initial subscribers of Subscription Receipts would have been entitled to receive an additional 0.1 share of common stock for each share of common stock underlying Subscription Receipts held by any such initial subscriber at the time such grace period lapsed. The Company filed a resale registration statement with the SEC relating to the 8,291,920 shares issued to the former shareholders of Choice and the 12,262,500 shares issued in connection with the private placement. The registration statement was effective as of the date of this filing.

Choice has been in business since 2004 and serves more than 150,000 residential and 7,500 commercial customers in the Southern and Central Florida regions through its 320 employees and over 150 collection vehicles by offering a complete range of solid waste and recycling collection, transportation, processing and disposal services. Choice operates nine hauling operations and three transfer and material recovery facilities.

The following table presents the purchase price consideration as of March 1, 2011:

 

Consideration:

  

Issuance of shares at stock price of $5.89

   $ 48,780,526   

Debt

     40,941,484   

Cash paid

     7,553,784   
  

 

 

 
   $ 97,275,794   
  

 

 

 

The preliminary allocation of the purchase price is based on the best information available to management. This allocation is provisional, as the Company is required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of March 1, 2011 that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The Company may adjust the preliminary purchase price allocation after obtaining additional information regarding asset valuation, liabilities assumed and revisions of previous estimates. The following table summarizes the preliminary allocation of the purchase price based on the estimated fair value of the acquired assets and assumed liabilities of Choice as of March 1, 2011 as follows:

 

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Net identifiable assets acquired:

  

Cash and cash equivalents

   $ 340,870   

Receivables

     6,095,801   

Inventory

     150,833   

Property and equipment

     29,618,377   

Customer contracts

     27,840,000   

Non-compete agreements

     2,880,000   

Deferred income tax assets and other assets

     2,234,452   

Accounts payable and accrued expenses

     (8,347,776

Capital lease obligations

     (3,523,615

Deferred income tax liabilities

     (11,593,837
  

 

 

 

Total identifiable assets acquired

     45,695,105   

Goodwill

     51,580,689   
  

 

 

 

Total purchase price

     97,275,794   

Less: Debt assumed

     (40,941,484

Less: Issuance of shares

     (48,780,526
  

 

 

 

Cash paid (including prepayment penalty of $1,853,784)

   $ 7,553,784   
  

 

 

 

Other assets include approximately $721,000 of notes receivable from prior Choice shareholders. In addition, the Company’s Condensed Consolidated Financial Statements for the three months ended September 30, 2011 includes approximately $15,473,000 of revenue and $23,000 of net loss before income taxes related to Choice and for the nine months ended September 30, 2011 includes approximately $37,448,000 of revenue and $266,000 of net loss before income taxes related to Choice.

Other Acquisitions

We acquired two franchises and twenty independent businesses during the three months ended September 30, 2011 and nine franchises and forty-four independent businesses during the nine months ended September 30, 2011, excluding Choice. The Company acquired three franchises and two independent businesses during the three months ended September 30, 2010 and three franchises and three independent businesses during the nine months ended September 30, 2010. The following table summarizes the current estimated aggregate fair values of the assets acquired and liabilities assumed at the date of acquisition for these acquisitions made during the three and nine months ended September 30, 2011, excluding Choice:

 

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     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Number of businesses acquired

     22        5        53        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net tangible assets acquired

        

Accounts receivable and other assets

   $ 4,082,401      $ 558,227      $ 10,254,204      $ 558,227   

Inventory

     4,273,651        198,350        8,998,788        198,350   

Property and equipment

     3,883,816        321,083        17,957,475        321,083   

Accounts payable and accrued expenses

     (4,684,380     (1,312,385     (11,823,352     (1,312,385
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     7,555,488        (234,725     25,388,115        (234,725

Identifiable intangible assets:

        

Customer relationships

     7,646,452        999,000        43,239,052        1,049,000   

Non-compete agreements

     2,557,000        380,000        7,498,200        405,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     10,203,452        1,379,000        50,737,252        1,454,000   

Goodwill

     26,520,956        1,787,594        84,835,009        1,812,594   

Aggregate purchase price

     44,279,896        2,931,869        160,960,376        3,031,869   

Less: Stock issued

     5,567,519        —          49,694,069        —     

Less: Contingent consideration

     24,500        —          3,042,234        —     

Less: Cash held back

     800,000        —          1,300,000        —     

Less: Notes issued or assumed

     10,000,600        2,064,869        18,599,300        2,114,869   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid on acquisitions

   $ 27,887,277      $ 867,000      $ 88,324,773      $ 917,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Contingent consideration includes (1) earn outs, which are based on the achievement of contractually negotiated levels of performance by certain of our acquired businesses and are payable at defined intervals through March 31, 2014 and (2) the performance of the Company’s stock price over a limited period from the date of the acquisition, typically less than 30 days.

See Note 16 for additional acquisitions subsequent to September 30, 2011.

Supplemental pro forma information

The results of operations of acquisitions since their respective acquisition dates are included in the Company’s Consolidated Financial Statements. The Company’s Consolidated Financial Statements include $49,578,000 of revenue and $3,310,000 of net income before income taxes for the three months ended September 30, 2011 and $93,135,770 of revenue and $2,303,832 of net income before income taxes for the nine months ended September 30, 2011 from the nine franchises and forty-five independent businesses, including Choice, acquired during the nine months ended September 30, 2011.

The following supplemental pro forma information presents the financial results as if all the acquisitions, including Choice, made during the nine months ended September 30, 2011 had occurred as of January 1, 2011 for the three and nine months ended September 30, 2011 and on January 1, 2010 for the three and nine months ended September 30, 2010. The 2010 supplemental pro forma information does not include adjustments for those acquisitions made during the year ended December 31, 2010.

Pro forma adjustments for the three months ended September 30, 2011 and 2010 primarily include adjustments to reflect additional depreciation and amortization of $148,000 and $2,459,000, respectively, related to the identifiable intangible assets recorded as part of the acquisition.

Pro forma adjustments for the nine months ended September 30, 2011 and 2010 primarily include adjustments to reflect additional depreciation and amortization of $3,717,000 and $6,450,000, respectively, related to the identifiable intangible assets recorded as part of the acquisition.

In addition, an adjustment was made for acquisition and merger expenses of $644,092 and $1,425,855 for the three months ended September 30, 2011 and 2010, respectively, and $4,735,328 and $1,425,855 for the nine months ended September 30, 2011 and 2010, respectively.

 

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     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Pro forma revenue

   $ 74,165,000      $ 66,808,000      $ 220,592,000      $ 184,377,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss

   $ (1,942,000   $ (2,788,000   $ (11,709,000   $ (7,249,000
  

 

 

   

 

 

   

 

 

   

 

 

 

The above supplemental pro forma information has been prepared from the unaudited results of the acquired businesses for comparative purposes and does not purport to be indicative of what would have occurred had these acquisitions been completed on January 1, 2011 or January 1, 2010. Pro forma information does not include certain going-forward cost savings and synergies, which may be realized by the combined operations. Accordingly, they may not be indicative of any future results of the Company.

NOTE 4 — GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets have been recognized in connection with the acquisitions described in Note 3 and substantially all of the balance is expected to be fully deductible for income tax purposes, except for goodwill related to the acquisition of Choice, which was a stock acquisition. Changes in the carrying amount of goodwill and other intangibles for each of the Company’s segments during the nine months ended September 30, 2011 were as follows:

 

     Hygiene     Waste  

Goodwill

    

Balance — December 31

    

Gross goodwill

   $ 30,530,309      $ —     

Accumulated impairment losses

     (870,000     —     
  

 

 

   

 

 

 
   $ 29,660,309      $ —     

Goodwill acquired

     70,976,741        65,438,957   

Foreign exchange translation

     (83,168 )     —     
  

 

 

   

 

 

 

Balance — September 30

    

Gross goodwill

     101,423,882        65,438,957   

Accumulated impairment losses

     (870,000     —     
  

 

 

   

 

 

 
   $ 100,553,882      $ 65,438,957   
  

 

 

   

 

 

 

Customer Relationships and Contracts

    

Balance — December 31

   $ 5,779,980      $ —     

Customers acquired

     36,259,052        34,820,000   

Amortization

     (2,942,382     (2,685,239

Foreign exchange translation

     (84,529     —     
  

 

 

   

 

 

 

Balance — September 30

   $ 39,012,121      $ 32,134,761   
  

 

 

   

 

 

 

Non-compete Agreements

    

Balance — December 31

   $ 1,888,825      $ —     

Agreements

     7,018,200        3,360,000   

Amortization

     (1,058,771     (716,333

Foreign exchange translation

     (27,908 )     —     
  

 

 

   

 

 

 

Balance — September 30

   $ 7,820,346      $ 2,643,667   
  

 

 

   

 

 

 

 

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Hygiene Segment

The fair value of the customer relationships and contracts acquired is based on future discounted cash flows expected to be generated from those customers. These customer relationships and contracts will be amortized on a straight-line basis over five to ten years, which is primarily based on historical customer attrition rates. The fair value of the non-compete agreements will be amortized on a straight-line basis over the length of the agreements, typically not exceeding five years.

Waste Segment

The fair value of the customer relationships and contracts acquired is based on future discounted cash flows expected to be generated from contracts with municipalities and customers. These customer relationships and contracts will be amortized on a straight-line basis over seven years, which is the weighted average of the estimated life of the contracts acquired. The fair value of the non-compete agreements will be amortized on a straight-line basis over the length of the agreements, typically not exceeding five years.

NOTE 5 — EQUITY

Choice

As part of the purchase price of Choice we issued 8,281,920 shares of our common stock to the previous shareholders of Choice. See Note 3.

Private placements

As discussed in Note 3, on March 1, 2011, in connection with the closing of the Choice acquisition, the 12,262,500 Subscription Receipts were exchanged for 12,262,500 shares of our common stock. As part of this transaction, we received cash of $56,253,791, net of issuance costs.

In addition, on March 22, 2011, we entered into a series of arm’s length securities purchase agreements to sell 12,000,000 shares of our common stock at a price of $5.00 per share, for aggregate proceeds of $60,000,000 to certain funds of a global financial institution (the “Private Placement”). We intend to use the proceeds from the Private Placement to further our organic and acquisition growth strategy, as well as for working capital purposes. On March 23, 2011, we closed the Private Placement and issued 12,000,000 shares of our common stock. Pursuant to the securities purchase agreements, the shares of common stock issued in the Private Placement may not be transferred on or before June 24, 2011, without our consent. We agreed to use commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock sold in the Private Placement. If the registration statement was not filed or declared effective within specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding certain grace periods, the investors will be entitled to receive liquidated damages in cash equal to one percent of the original offering price for each share purchased in the private placement that at such time cannot be sold by the investor as a result of the registration statement not being effective. The Company filed a resale registration statement with the SEC relating to the 12,000,000 shares issued in the Private Placement. The registration statement was effective as of the date of this filing.

On April 15, 2011, we entered into a series of arm’s length securities purchase agreements to sell 9,857,143 shares of our common stock at a price of $7.70 per share, for aggregate proceeds of $75,900,000 to certain funds of a global financial institution. We completed this transaction on April 19, 2011 and intend to use the proceeds from this transaction to further our organic and acquisition growth strategy, as well as for working capital purposes. Pursuant to the securities purchase agreements, the Company agreed to use commercially reasonable efforts to file, after July 24, 2011 a resale registration statement with the SEC relating to the shares of common stock sold in the private placement. If the registration statement was not filed or declared effective within the specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding certain grace periods, the investors will be, entitled to receive liquidated damages in cash equal to one percent of the original offering price for each share purchased in the private placement that at such time cannot be sold by the investor as a result of the registration statement not being effective. The Company filed a resale registration statement with the SEC relating to the 9,857,143 shares. The registration statement was effective as of the date of this filing.

Acquisitions and asset purchases

We issued a total of 7,359,435 shares of our common stock in connection with certain acquisitions of franchisees and businesses during the nine months ended September 30, 2011. In addition, during the nine months ended September 30, 2011, we issued 360,782 shares for purchases of property and equipment of $194,648 and to settle $987,879 of liabilities.

Stock based compensation and warrants

Stock based compensation is the result of the recognition of the fair value of share based compensation on the date of grant over the service period for which the awards are expected to vest. Options to purchase 705,000 shares were exercised at a weighted average exercise price of $0.88 during 2011.

In May 2011, warrants to purchase 5,500,000 shares with an exercise price of $0.50 in Canadian dollars per warrant issued to a director of CoolBrands and the Company, and certain parties related to the director, were exercised and as a result, we received cash of $2,750,000 in Canadian dollars.

 

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Convertible promissory note

During 2011, convertible promissory notes were converted into 3,497,858 shares of the Company’s common stock. See Note 6.

NOTE 6 — LONG TERM OBLIGATIONS

Debt consisted of the following as of September 30, 2011 and December 31, 2010:

 

     September 30,
2011
    December 31,
2010
 

Line of credit agreement dated March 2008. Interest is payable monthly at one month LIBOR plus 2.85% at December 31, 2010. Interest rate of 3.11% at December 31, 2010

   $ —        $ 9,946,932   

Line of credit agreement dated June 2008. Interest is payable monthly at one month LIBOR plus 1.50% at December 31, 2010. Interest rate of 1.76% at December 31, 2010

     —          15,000,000   

Line of credit agreement dated March 2011 and matures in July 2013

     24,835,195        —     

Equipment financing borrowings under the August 2012 agreements

     14,164,240        —     

Acquisition notes payables

     14,065,285        7,891,209   

Capitalized lease obligations with related parties

     3,355,925        —     

Capitalized lease obligations

     776,758        798,081   

Convertible promissory notes:

    

6% Note due September 30, 2011

     —          5,000,000   

4% Notes at various dates through August 2016

     4,048,380        5,771,480   
  

 

 

   

 

 

 
     61,245,783        44,407,702   

Short term obligations

     (13,346,282     (13,378,710
  

 

 

   

 

 

 

Long term obligations

   $ 47,899,501      $ 31,028,992   
  

 

 

   

 

 

 

Revolving Credit Facilities

In March 2011, we entered into a $100 million senior secured revolving credit facility (the “credit facility”). Borrowings under the credit facility are secured by a first priority lien on substantially all of our existing and hereafter acquired assets, including $25 million of cash on borrowings in excess of $75 million. Furthermore, borrowings under the facility are guaranteed by all of our domestic subsidiaries and secured by substantially all the assets and stock of our domestic subsidiaries and substantially all of the stock of our foreign subsidiaries. Interest on borrowings under the credit facility will typically accrue at London Interbank Offered Rate (“LIBOR”) plus 2.5% to 4.0%, depending on the ratio of senior debt to (“Adjusted EBITDA”) (as such term is defined in the credit facility, which includes specified adjustments and allowances authorized by the lender). For the three months ended September 30, 2011 interest accrued based on LIBOR plus 2.5%. We also have the option to request swingline loans and borrowings using a base rate. Interest is payable monthly or quarterly on all outstanding borrowings. The credit facility matures in July 2013.

Borrowings and availability under the credit facility are subject to compliance with financial covenants, including achieving specified consolidated Adjusted EBITDA levels and maintaining leverage and coverage ratios and a minimum liquidity requirement. The consolidated EBITDA covenant, the leverage and coverage ratios, and the minimum liquidity requirements should not be considered indicative of the Company’s expectations regarding future performance. The credit facility also places restrictions on our ability to incur additional indebtedness, make certain acquisitions, create liens or other encumbrances, sell or otherwise dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. In August 2011, the Company entered into an amendment that modifies the covenants, including an increase in permitted indebtedness to $40.0 million. Failure to achieve or maintain the financial covenants in the credit facility or failure to comply with one or more of the operational covenants could adversely affect our ability to borrow monies and could result in a default under the credit facility. The credit facility is subject to other standard default provisions. We have met all the required covenants under the credit facility as of September 30, 2011.

The credit facility replaces our prior $25 million aggregated credit facilities, which are discussed in the 2010 Annual Report.

In August 2011, the Company entered into an agreement, which provides financing up to $16.4 million for new and used trucks, carts, compactors, and containers for our Waste segment. The financing will consist of one or more fixed rate loans that have a term of five years. The interest rate for borrowings under this facility will be determined at the time each such borrowing and will be based on a spread over the five year U.S. swap rate. The commitment letter expires in February 2012 with a renewal option of six months, if approved. During the three months ended September 30, 2011, borrowings of $8.9 million were made at and average interest rate of 3.55%.

 

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Separately in August 2011, the Company entered into an agreement to finance new and replacement vehicles for its fleet that allows for one or more fixed rate loans totaling in the aggregate, no more than $18.6 million. The commitment, which expires in June 2012, is secured by Waste segment’s vehicles and containers. The interest rate for borrowings under this facility will be determined at the time of each such borrowing and will be based on a spread above the U.S swap rate for the applicable term, either four or five years. Borrowings under this loan commitment are subject to the same financial convents as the above credit facility. During the three months ended September 30, 2011, borrowings of $5.3 million were made at an average interest rate of 4.47%.

In addition, in August 2011, the Company obtained an additional line of credit of $25 million for new and replacement vehicles for its fleet and obtained a commitment letter to finance information technology and related equipment not to exceed $2.5 million. The interest rate and term for each fixed rate loan will be determined at the time of each such borrowing and will be based on a spread over the U.S. swap rate for the applicable term. The commitment expires in August 2014. During the three months ended September 30, 2011, the Company has not made any borrowings under these agreements.

Choice debt assumed and capital lease obligations with related parties

In connection with the acquisition of Choice, we assumed $40,941,484 of debt of which $39,219,160 was paid off at the time of the acquisition. The remaining debt was recorded at fair value on the date of the acquisition and included in acquisition notes payable above. Payments are made monthly and mature at various dates through August 2018.

In addition, in connection with the acquisition of Choice we entered into capital leases that have initial terms of five or ten years with companies owned by shareholders of Choice to finance the cost of leasing office buildings and properties, including warehouses. Minimum payments under these capital leases for the next five years are $534,000 each year and $1,920,000 thereafter. We also recorded the fair value of $3,074,000 for these properties leased in property and equipment, which will be depreciated over the term of the respective lease.

Convertible notes

Conversions during 2011

In February 2011, a 6% convertible promissory note of $5,000,000 due on September 30, 2011 issued as part of total consideration paid for an acquisition was fully converted into 1,312,864 of the Company’s common shares. Since the convertible note was issued as part of a business combination, the note was recorded at fair value of $6,429,720 on the date of issuance including $5,182,500 recorded as a current liability and $1,247,220 recorded as Additional paid-in capital reflecting the promissory note’s beneficial conversion feature. As of December 31, 2010, the net carrying amount of this promissory note was $6,385,720 ($6,247,220 principal and conversion feature and $138,500 unamortized premium).

During 2011, 4% convertible promissory notes of $10,471,480 that were issued in 2010 and 2011 as part of total consideration paid for acquisitions were fully converted into 2,184,994 of the Company’s common shares at conversion rates of between $3.88 and $5.68 and $800,000 of cash was paid to settle the remaining principal and interest.

Outstanding at September 30, 2011

The Company issued the following 4% convertible promissory notes that were still outstanding at September 30, 2011 as part of total consideration paid for acquisitions during 2011:

 

   

A convertible promissory note of $1,400,000 due on December 31, 2011 that is convertible into a maximum of 412,444 shares of the Company’s common stock (“Common Stock”) at a fixed conversion rate of $5.58. The holder may convert the principal and interest shares of Common Stock at any time following both (i) conditional approval by the Toronto Stock Exchange (“TSX”) of the listing of the shares of Common Stock issuable upon conversion of each note and (ii) the date that the Company’s Registration Statement on Form S-1 for the resale of Common Stock is declared effective by the SEC but not later than the maturity date of each note. The Company may deliver at any time prior to and including the maturity date any portion of the outstanding principal and accrued interest in a combination of cash and shares of Common Stock, which is listed on the TSX and available for immediate resale pursuant to a registration statement on Form S-1, contingent on such registration statement and any post-effective amendments thereto being effective at the time the Common Stock is delivered. To the extent Common Stock is part of such consideration, the conversion price at which the outstanding principal and accrued interest subject to conversion will be converted to Common Stock will be the lesser of the TSX price the day prior maturity or $5.58. The Company records this note at fair value and therefore adjusts the carrying value to fair value at each subsequent reporting period.

 

   

A convertible promissory note of $595,000 maturing on December 31, 2011 and a convertible promissory note of $1,560,000 maturing on December 31, 2013 with monthly cash payments of $58,447 beginning in October 2011. These notes are convertible into a maximum of 514,965 shares of Common Stock. The holder may convert the principal and interest into Common Stock at any time, but not later than the maturity date at a fixed conversion rate of $4.77 and $5.00, respectively. In addition, the Company may deliver at any time prior to and including the maturity date all the outstanding principal and accrued interest in shares of Common Stock, which is listed on the NASDAQ Stock Market LLC (“NASDAQ”) and available for immediate resale pursuant to a registration statement on Form S-1, contingent on such registration statement and any post-effective amendments thereto being effective at the time the Common Stock is delivered. The conversion price at which the principal and accrued interest subject to conversion will be converted to Common Stock will be the lesser of (i) the volume weighted average price for the five trading days on NASDAQ immediately prior to the date of conversion, and (ii) and the fixed conversion rate; provided, however, that

 

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the closing price per share of Common Stock as reported on NASDAQ on the trading day immediately preceding the date of conversion is not less than $3.00 or $5.00, respectively. The Company records this note at fair value and therefore adjusts the carrying value to fair value at each subsequent reporting period.

 

   

Convertible promissory notes with an aggregate principal amount of $3,886,500 and have aggregate quarterly payments of $437,781 and are due at various dates between August 2012 and August 2016. The Company may deliver at any time prior to and including the maturity date all the outstanding principal and accrued interest in a combination of cash and shares of the Common Stock, which is listed on NASDAQ or the TSX and available for immediate resale pursuant to a registration statement on Form S-1, contingent on such registration statement and any post-effective amendments thereto being effective at the time the Common Stock is delivered. To the extent Common Stock is part of such consideration, the conversion price at which the outstanding principal and accrued interest subject to conversion will be converted to Common Stock will be at the most recent U.S. dollar closing price of Common Stock on NASDAQ on the trading day prior to the date of conversion. These notes are convertible only at the Company’s election into a maximum of 976,626 shares of Common Stock and are not required to be accounted for at fair value in periods subsequent to their initial recording.

 

   

A convertible promissory note of $1,810,000 due on December 31, 2012 with monthly cash payments of $109,693 beginning in August 2011. The note may be converted by the holder at the conversion rate of $5.00 or a maximum of 362,000 shares of Common Stock at any time until the maturity date. The note was recorded at a fair value of $1,845,000 on the date of issuance and $1,810,000 was recorded as a liability and $35,000 recorded as Additional paid-in capital reflecting the convertible promissory note’s beneficial conversion feature. This note is not required to be subsequently accounted for at fair value in periods subsequent to its initial recording.

If all the above outstanding convertible promissory notes would be converted on September 30, 2011, we would issue 1,976,480 shares of Common Stock.

NOTE 7 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

The Company determines the fair value of certain assets and liabilities based on assumptions that market participants would use in pricing the assets or liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or the “exit price.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and gives precedence to observable inputs in determining fair value. The following levels were established for each input:

Level 1: “Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.”

Level 2: “Include other inputs that are observable for the asset or liability either directly or indirectly in the marketplace.”

Level 3: “Unobservable inputs for the asset or liability.”

The fair value of the convertible promissory notes are based primarily on a Black-Scholes pricing model. The significant management assumptions and estimates used in determining the fair value include the expected term and volatility of our common stock. The expected volatility was based on an analysis of industry peer’s historical stock price over the term of the notes as we currently do not have sufficient history of our own stock volatility, which was estimated at approximately 25%. Subsequent changes in the fair value of these instruments are recorded in Other expense, net on the Condensed Consolidated Statements of Operations. Future movement in the market price of our stock could significantly change the fair value of these instruments and impact our earnings.

The convertible promissory notes that are convertible into a variable number of the Company’s shares issued during 2010 and 2011 are Level 3 financial instruments since they are not traded on an active market and there are unobservable inputs, such as expected volatility used to determine the fair value of these instruments.

In addition, during 2011, we issued an earn out that is to be settled in shares within one year from the date of acquisition or once the acquired business’s revenue achieves an agreed upon level. The number of shares that could be issued varies based on the achievement of agreed upon revenue metrics.

The following table is a reconciliation of changes in fair value of these liabilities that have been classified as Level 3 in the fair value hierarchy:

 

Balance as of December 31, 2010

   $ 5,771,480   

Issuance of convertible promissory notes

     8,323,700   

Net losses included in earnings

     1,961,100   
  

 

 

 

Balance as of March 31, 2011

     16,056,280   

 

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Issuance of earn out to be settled in shares

     574,000   

Settlement/conversion of convertible promissory notes

     (15,933,480

Net losses included in earnings

     3,554,900   
  

 

 

 

Balance as of June 30, 2011

   $ 4,251,700   

Issuance of convertible promissory notes

     2,362,900   

Settlement/conversion of convertible promissory notes

     (1,865,300

Net gains included in earnings

     (749,100

Balance as of September 30, 2011

   $ 4,000,200   
  

 

 

 

The amount of gains for the three and nine months ended September 30, 2011 included in earnings attributable to the change in gains or losses relating to liabilities still held as of September 30, 2011

   $ 375,300   
  

 

 

 

Financial Instruments

The Company’s financial instruments, which may expose the Company to concentrations of credit risk, include cash and cash equivalents, account receivables, accounts payable, and debt. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. The carrying amounts of cash and the current portion of accounts receivable and accounts payable approximate fair value due to the short maturity of these instruments. The fair value of the Company’s debt is estimated based on the current borrowing rates available to the Company for bank loans with similar terms and maturities, and approximates the carrying value of these liabilities. In addition, certain convertible promissory notes are recorded at fair value at each reporting period date.

NOTE 8 — INVENTORY

Inventory is comprised of the following components at September 30, 2011 and December 30, 2010:

 

     September 30,
2011
     December 31,
2010
 

Finished goods

   $ 12,297,614       $ 2,968,076   

Raw materials

     3,542,115         —     
  

 

 

    

 

 

 
   $ 15,839,729       $ 2,968,076   
  

 

 

    

 

 

 

NOTE 9 — OTHER EXPENSE, NET

Other expense, net consists of the following for the three and nine months ended September 30, 2011 and 2010:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Interest expense

   $ (933,901   $ (371,093   $ (1,644,121   $ (1,053,513

Net gain / (loss) on debt related fair value measurements

     590,100        —          (4,925,900     —     

Interest income

     126,296        13,196        223,320        49,877   

Foreign currency (loss) / gain

     (106,079     —          57,388        —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (323,584   $ (357,897   $ (6,289,313   $ (1,003,636
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 10 — COMPREHENSIVE LOSS

Comprehensive loss consists of the following for the three and nine months ended September 30, 2011 and 2010:

 

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     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Net loss

   $ (3,710,150   $ (4,135,080   $ (14,098,271   $ (7,500,159

Foreign currency translation

     (8,654     —          (8,061     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (3,718,804   $ (4,135,080   $ (14,106,332   $ (7,500,159
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 11 — SUPPLEMENTAL CASH FLOW INFORMATION

The following table includes supplemental cash flow information, including noncash investing and financing activity for the nine months ended September 30, 2011 and 2010.

 

     2011      2010  

Cash received for interest

   $ 133,736       $ 49,876   
  

 

 

    

 

 

 

Cash paid for interest

   $ 980,754       $ 673,133   
  

 

 

    

 

 

 

NOTE 12 — LOSS PER SHARE

Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. The following were not included in the computation of diluted net loss per share for the three months ended September 30, 2011 and 2010 as their inclusion would be antidilutive:

 

   

Stock options and restricted units to purchase 6,336,200 shares of common stock.

 

   

Convertible promissory notes that if-converted would result in 1,976,480 shares of common stock.

The following were not included in the computation of diluted net loss per share for the nine months ended September 30, 2011 and 2010 as their inclusion would be antidilutive:

 

   

Warrants to purchase 5,500,000 shares of common stock at $0.50 per share were outstanding and expire in November 2011. These were exercised in May 2011.

 

   

Stock options and restricted units to purchase 6,336,200 shares of common stock.

 

   

Convertible promissory notes that if-converted would result in 1,976,480 shares of common stock.

NOTE 13 — INCOME TAXES

As a result of the merger with CoolBrands on November 2, 2010, as discussed in Note 1 in the 2010 Annual Report, the Company converted from a corporation taxed under the provisions of Subchapter S of the Internal Revenue Code to a tax-paying entity and accounts for income taxes under the asset and liability method. For the three and nine months ended September 30, 2011, the Company has recorded an estimate for income taxes based on the Company’s taxable operating results for the year ending December 31, 2011 and an effective income tax rate of 26.1%. Certain estimates, such as the Company’s projected operating results and the treatment of gains and losses on debt related fair value measurements used in calculating the effective tax rate were revised during the three months ended September 30, 2011, which resulted in the Company recording $46,384 of income tax expense and $8,176,480 of income tax benefit for the three and nine months ended September 30, 2011.

In addition, during 2011, the Company reversed the valuation allowance of $2,368,000 recorded as of December 31, 2010 as a result of the Company’s expectation to utilize its deferred tax assets through the generation of future taxable income arising from deferred tax liability balances. The majority of these deferred tax liabilities were recorded as part of the acquisition of Choice on March 1, 2011 as discussed in Note 3.

NOTE 14 — SEGMENTS

On March 1, 2011, the Company completed its acquisition of Choice, a Florida based company that provides a complete range of solid waste and recycling collection, transportation, processing and disposal services. As a result of the acquisition of Choice, the Company now has

 

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two operating segments: (1) Hygiene and (2) Waste. The Company’s hygiene operating segment 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’s waste segment primary consists of the operations of Choice and acquisitions of solid waste collection businesses. Prior to the acquisition of Choice, the Company managed, allocated resources, and reported in one segment.

The following table presents financial information for each of the Company’s reportable segments.

 

     Hygiene     Waste     Consolidated  

Three Months Ended September 30, 2011

      

Revenue

   $ 49,037,037      $ 18,167,958      $ 67,204,995   

Depreciation and amortization

     3,785,132        3,094,475        6,879,607   

Income (loss) from operations

     (3,655,806     269,240        (3,386,566

Interest expense and other, net

     (237,964     (85,620     (323,584

Net income (loss) before income taxes

     (3,893,770     183,620        (3,710,150

Capital expenditures

   $ 4,293,620      $ 1,687,545      $ 5,981,165   
  

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2011

      

Revenue

   $ 104,634,012      $ 41,643,361        146,277,373   

Depreciation and amortization

     8,960,711        6,711,272        15,671,983   

Income (loss) from operations

     (16,152,692     167,254        (15,985,438

Interest expense and other, net

     (6,109,846     (179,467     (6,289,313

Net income (loss) before income taxes

     (22,262,538     12,213        (22,274,751

Capital expenditures, including non-cash of $194,648

   $ 11,539,164      $ 2,089,942      $ 13,629,106   
  

 

 

   

 

 

   

 

 

 

Total assets as of September 30, 2011

   $ 307,980,202      $ 144,031,665      $ 452,011,867   
  

 

 

   

 

 

   

 

 

 

NOTE 15 — COMMITMENTS AND CONTINGENCIES

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 Company’s financial position, results of operations or cash flows.

In connection with a distribution agreement entered into in December 2010, the Company provided a guarantee that the distributor’s operating cash flows associated with the agreement would not fall below certain agreed-to minimums, subject to certain pre-defined conditions, over the ten year term of the distribution agreement. If the distributor’s annual operating cash flow does fall below the agreed-to annual minimums, the Company will reimburse the distributor for any such short fall up to a pre-designated amount. No value was assigned to the fair value of the guarantee at September 30, 2011 and December 31, 2010 based on a probability assessment of the projected cash flows. Management currently does not believe that it is probable that any amounts will be paid under this agreement and thus there is no amount accrued for the guarantee in the Condensed Consolidated Financial Statements. This liability would be considered a Level 3 financial instrument given the unobservable inputs used in the projected cash flow model. See Note 7 for the fair value hierarchy.

NOTE 16 — SUBSEQUENT EVENTS

Subsequent to September 30, 2011, the Company acquired several businesses. While the terms, price, and conditions of each of these acquisitions were negotiated individually, consideration to the sellers typically consists of a combination of cash, our common stock, and issuance of debt. Aggregate consideration paid for these acquired businesses was approximately $12.4 million consisting of approximately $8.0 million in cash, 81,419 shares of our common stock, and issuance of promissory notes that may be converted into 1,026,875 shares of our common stock subject to certain customary restrictions, including acceptance by the Toronto Stock Exchange.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Business Overview and Outlook

We provide essential hygiene and sanitation solutions to customers throughout much of North America and internationally through our global network of company owned operations, franchises and master licensees. These solutions include essential 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 involve providing our customers with: (i) 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, bar towels and linens; (iii) manual cleaning of their facilities; and (iv) solid waste collection services. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries. In addition, our solid waste collection services provide services primarily to commercial and residential customers through contracts with commercial customers, municipalities, or other agencies.

Prospectively, we intend to grow in both existing and new geographic markets through a combination of organic and acquisition growth. However, we will continue to focus our investments towards those opportunities which will most benefit our core businesses, which currently are: chemical, facility services, linen rental and supply, and waste collection services. Our revenue outlook for 2011 is expected to exceed $220 million, with current annualized run-rate revenue in excess of $320 million. Run-rate revenue is defined as October 2011 estimated revenue annualized plus the annualized revenue impact of acquisitions since October 2011.

We have company owned operations and franchise operations located throughout the United States and Canada and have 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.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements in conformity with United States generally accepted accounting principles involves the use of estimates and assumptions that affect the recorded amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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 condensed consolidated 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 in the 2010 Annual Report for additional discussion of the application of these and other accounting policies. Any significant changes to those policies or new significant policies are described below.

For the nine months ended September 30, 2011, there were no changes in the methodology for computing critical accounting estimates and no material changes to the important assumptions underlying the critical accounting estimates.

Segments

On March 1, 2011, we completed our acquisition of Choice Environmental Services, Inc. (“Choice”), a Florida based company that provides a complete range of solid waste and recycling collection, transportation, processing and disposal services. As a result of the acquisition of Choice, we now have two segments (1) Hygiene and (2) Waste. The Company’s hygiene segment 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’s waste segment primarily consists of the operations of Choice and acquisitions of solid waste collection businesses. Prior to the acquisition of Choice, the Company managed, allocated resources, and reported in one segment, Hygiene. See Note 14 in the Notes to the Condensed Consolidated Financial Statements. The results of operations for the three and nine months ended September 30, 2011 have been presented in the Company’s segments.

Acquisition and merger expenses

Acquisition and merger expenses include costs directly-related to the acquisition of two of our franchises and twenty independent businesses during the three months ended September 30, 2011 and the acquisition of nine of our franchises and forty-five independent businesses during the nine months ended September 30, 2011. Acquisition and merger expenses also include costs directly-related to the merger with CoolBrands International, Inc. (“CoolBrands”) as discussed in Note 1 of our 2010 Annual Report. These costs include third party due diligence, legal, accounting and professional service expenses.

 

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Adoption of Newly Issued Accounting Pronouncements

Revenue Recognition: In October 2009, the Financial Accounting Standards Board (“FASB”) issued new standards for multiple-deliverable revenue arrangements. These new standards affect the determination of when individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. In addition, these new standards modify the manner in which the transaction consideration is allocated across separately identified deliverables, eliminate the use of the residual value method of allocating arrangement consideration and require expanded disclosure. These new standards will become effective for multiple-element arrangements entered into or materially modified on or after January 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. We adopted these standards for multiple-element arrangements entered into or materially modified on or after January 1, 2011. The adoption of this accounting standard did not have a material impact on our Condensed Consolidated Financial Statements.

Goodwill: In December 2010, the FASB issued new standards defining when step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts should be performed and modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For reporting units with zero or negative carrying amounts an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The standards are effective for fiscal years and interim periods within those years, beginning December 15, 2010 and were effective for the Company on January 1, 2011. The adoption of this accounting standard did not have a material impact on our Condensed Consolidated Financial Statements.

Business Combinations: In December 2010, the FASB issued new standards that clarify that if comparative financial statements are presented the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The standards are effective prospectively for material (either on an individual or aggregate basis) business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. We have included the required disclosures in Note 3 to the Condensed Consolidated Financial Statements.

Newly Issued Accounting Pronouncements

Goodwill: In September 2011, the FASB issued new standards that allow an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. In addition an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. These standards are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early application is permitted. We are currently evaluating the effect of these standards on our Consolidated Financial Statements.

Comprehensive Income: In June 2011, the FASB issued new standards to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This standard eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. These standards are to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early application is permitted. We are currently evaluating the effect of these standards on our Consolidated Financial Statements.

Fair Value Measurements: In May 2011, the FASB issued new standards clarifying the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements and expands fair value disclosures. These standards are to be applied prospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early application is not permitted. We are currently evaluating the effect of these standards on our Consolidated Financial Statements.

RESULTS OF OPERATIONS — THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

We acquired two franchises and twenty independent businesses during the three months ended September 30, 2011 and nine franchises and forty-five independent businesses during the nine months ended September 30, 2011. The term “Hygiene Acquisitions” refers to the two franchises and

 

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twenty independent hygiene and chemical businesses acquired during the three months ended September 30, 2011 or the nine franchises and forty-two independent hygiene and chemical businesses acquired during the nine months ended September 30, 2011. The waste segment includes Choice, acquired in March 2011, and two additional acquisitions of solid waste and collection companies during the three months ended June 30, 2011. We refer to these acquisitions as “Waste Acquisitions.” The term “Acquisitions” refers to both the Hygiene Acquisitions and Waste Acquisitions during the respective periods.

Revenue

We derive our revenue through the delivery of a wide-variety of essential hygiene and sanitation products and services. We deliver hygiene products and services on a regularly scheduled basis which include providing our customers with (i) 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, bar towels, and linens; (iii) manual cleaning of their facilities; and (iv) solid waste collection and recycling services. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries. Our waste segment provides services primarily to commercial and residential customers through contracts with commercial customers, municipalities, or other agencies.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

Total revenue and the revenue derived from each revenue type by segment for the three months ended September 30, 2011 and 2010 is as follows:

 

     2011      % of
Total
Revenue
    2010      % of
Total
Revenue
 

Revenue

          

Hygiene products and services

          

Chemical

   $ 27,919,241         41.6   $ 4,728,506         29.4

Chemical wholesale

     6,218,107         9.3        —           —     

Hygiene services

     6,884,109         10.2        4,341,867         27.0   

Paper and supplies

     4,362,765         6.5        3,135,244         19.5   

Rental and other

     3,219,232         4.8        1,716,517         10.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total hygiene product and services

     48,603,454         72.4        13,922,134         86.7   

Waste

          

Services

     16,463,248         24.5        —           —     

Products

     1,704,710         2.5        —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total products and service

     66,771,412         99.4        13,922,134         86.7   

Hygiene franchise

     433,583         0.6        2,138,945         13.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 67,204,995         100.0   $ 16,061,079         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated revenue increased $51,143,916 or 318% to $67,204,995 for the three months ended September 30, 2011 as compared to the same period in 2010. This increase includes $18,167,958 related to Waste Acquisitions and an increase of $30,219,484 from Hygiene Acquisitions, which is offset by a $1,837,000 loss in franchise revenue earned during the three months ended September 30, 2011 related to Hygiene Acquisitions. Excluding the impact of Acquisitions, consolidated revenue increased $4,593,474 or 28.6% to $20,654,553 for the three months ended September 30, 2011.

Hygiene products and services revenue increased $34,681,320 or 249% during the three months ended September 30, 2011 as compared to the same period in 2010. This increase includes $30,219,484 related to Hygiene Acquisitions. Excluding the impact from Hygiene Acquisitions, hygiene products and services revenue increased $4,461,836 or 32.0% to $18,383,970.

 

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Since 2010, our overall revenue mix has shifted towards our core chemical product and service revenue from our legacy hygiene business. Factors that contribute to this trend include: (i) our acquisition efforts have been heavily focused at chemical product and service companies as we have rounded out our North American operating footprint; (ii) we have placed particular emphasis on the development of our core markets including our chemical offering, particularly as it relates to ware washing and laundry solutions and a lesser focus on our legacy hygiene service offerings; and (iii) we continue to aggressively managed customer profitability terminating less favorable arrangements.

Hygiene franchise revenue decreased $1,705,362 for the three months ended September 30, 2011 as compared to the same period in 2010, which includes a decrease of $1,837,000 from the acquisition of our franchises during the period. Reacquiring certain of our franchisees during the period result in less hygiene franchise revenue, which is offset by an increase in hygiene product and service revenue from the remaining franchises and international licenses. Excluding the impact from Hygiene Acquisitions, hygiene franchise revenue increased $131,638 or 6.1% primary due to additional product revenue under our Master License Agreements during the three months ended September 30, 2011 as compared to the same period in the 2010.

Cost of Sales

Hygiene cost of sales consists primarily of paper, air freshener, chemical and other consumable products sold to our customers, franchisees and international licensees. Waste costs of sales include costs related to the disposal of collections and cost of recycled paper purchases. Cost of sales for the three months ended September 30, 2011 and 2010 are as follows:

 

     2011      %(1)     2010      %(1)  

Hygiene

          

Company owned operations

   $ 16,189,230         38.2   $ 4,772,207         34.3

Chemical wholesale

     4,116,118         66.2        —           —     

Franchisee product sales

     187,288         90.9        1,335,479         93.0   

Waste

     5,325,188         29.3        —           —     
  

 

 

      

 

 

    

Total cost of sales

   $ 25,817,824         38.4   $ 6,107,686         43.9
  

 

 

      

 

 

    

 

(1) Represents cost as a percentage of the respective segment’s product and service line revenue.

Consolidated cost of sales for the three months ended September 30, 2011 increased $19,710,138 or 323% to $25,817,824 as compared to the same period in 2010. This increase includes $5,325,188 related to Waste Acquisitions and $13,392,230 from Hygiene Acquisitions in the three months ended September 30, 2011 as compared to the same period of 2010. Included in the increase from Hygiene Acquisitions is $4,116,118 of cost of sales related to chemical wholesale revenue. Excluding the impact from Acquisitions, consolidated cost of sales increased $992,720 or 16.2% to $7,100,406 for the three months ended September 30, 2011 as compared to the same period in 2010.

Hygiene company owned operations cost of sales for the three months ended September 30, 2011 increased $11,417,023 or 239% to $16,189,230 as compared to the same period in 2010 and includes $9,276,112 related to Hygiene Acquisitions. Excluding the impact of Hygiene Acquisitions, cost of sales for company owned operations increased $2,140,911 or 44.8% to $6,913,118, or 37.6% of related revenue for the three months ended September 30, 2011 as compared to 34.3% for the same period in 2010. During the three months ended September 30, 2011, the increase of $2,140,911 consisted of an increase of $546,860 or 11.5% related to the change in our revenue mix as our revenue mix has shifted toward higher cost chemical product revenue, an increase of $1,317,942 or 27.7% due to the current periods higher product revenue volume, and a $276,109 or 5.8% increase resulting from increased cost of products.

Hygiene cost of sales to franchisees for the three months ended September 30, 2011 decreased $1,148,191 or 86.0% to $187,288 as compared to the same period in 2010, which includes a decrease of $1,213,628 from the acquisition of our franchises during the period. We charge franchises a percentage of our costs, and, therefore, we earn a lower margin on product revenue to franchises. Excluding the impact of Hygiene Acquisitions, cost of goods sold increased $65,437 during the three months ended September 30, 2011 as compared to the same period in 2010.

Route Expenses

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 three months ended September 30, 2011 and 2010 are as follows:

 

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     2011      %(1)     2010      %(1)  

Hygiene

          

Compensation

   $ 6,382,711         15.1   $ 2,451,906         17.6

Vehicle and other

     2,300,054         5.4        1,059,503         7.6   

Waste

     5,936,153         32.7        —           —     
  

 

 

      

 

 

    

Total route expenses

   $ 14,618,918         24.1   $ 3,511,409         25.2
  

 

 

      

 

 

    

 

(1) Represents cost as a percentage of Products and Services revenue, excluding chemical wholesale revenue, for the respective operating segment. Chemical wholesale revenue is excluded as it does not have associated route expenses.

Consolidated route expenses for the three months ended September 30, 2011 increased $11,107,509 or 316% to $14,618,918 improving to 24.1% of hygiene product and service revenue, excluding chemical wholesale, as compared to 25.2% for the same period in 2010. This increase includes $5,936,153 related to Waste Acquisitions and $4,718,836 related to Hygiene Acquisitions. Excluding the impact of Acquisitions, route expenses increased $452,520 or 12.9% to $3,963,929 or 21.6% of related revenue for the three months ended September 30, 2011 as compared to 25.2% for the same period in 2010, primarily due to route consolidation and optimization initiatives combined with a higher revenue base. The increase of $452,520 consists primarily of $253,644 or 7.2% in compensation and $198,876 or 5.7% in vehicle and other route expenses. These increases are primarily the result of headcount and vehicles added as part of a distribution agreement entered into in December 2010.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses consist primarily of the costs incurred for:

 

   

Regional, 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; compensation and commission for branch field sales representative; and corporate account and distribution sales personal.

 

   

Corporate office expenses that are related to general support services, which include executive management compensation and related costs, as well as costs for information technology, human resources, accounting, purchasing and other support functions.

The details of selling, general, and administrative expenses for the three months ended September 30, 2011 and 2010 are as follows:

 

     2011      %(1)     2010      %(1)  

Hygiene

          

Compensation

   $ 14,197,153         29.0   $ 5,164,960         32.2

Occupancy

     1,569,146         3.2        825,666         5.1   

Other

     3,300,650         6.7        1,530,420         9.5   

Waste

     3,564,169         19.6        —           —     
  

 

 

      

 

 

    

Total selling, general, and administration expenses

   $ 22,631,120         33.7   $ 7,521,046         46.8
  

 

 

      

 

 

    

 

(1) Represents cost as a percentage of revenue for the respective segment.

Consolidated selling, general, and administrative expenses for the three months ended September 30, 2011 increased $15,110,074 or 201% to $22,631,120 as compared to the same period of 2010. This increase includes $3,564,169 related to Waste Acquisitions and $8,707,893 related to Hygiene Acquisitions. Excluding the impact of Acquisitions, selling, general, and administrative expenses increased $2,838,012 or 37.7%.

 

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Hygiene compensation for the three months ended September 30, 2011 increased $9,032,193 or 175% to $14,197,153 as compared to the same period of 2010 and includes an increase of $6,326,534 related to Hygiene Acquisitions. Excluding the impact of Acquisitions, hygiene compensation expense for the three months ended September 30, 2011 as compared to the same period in 2010 increased $2,705,659 or 36.0% to $7,870,619. This increase was primarily the result of an increase of approximately $1,030,000 related to our expansion of our corporate, field and distribution sales organizations to accelerate the growth in our core chemical program and an increase of $1,675,659 of salaries and other costs largely associated with our transition from a private company to a public company, which includes $1,016,788 for stock based compensation.

Occupancy expenses for the three months ended September 30, 2011 increased $743,480 or 90.0% to $1,569,146 as compared to the same period of 2010, which includes an increase of $819,369 related to Hygiene Acquisitions. Excluding the impact of these acquisitions, occupancy expenses for three months ended September 30, 2011, as compared to the same period of 2010, decreased $75,889 or 9.2%.

Other expenses for three months ended September 30, 2011 increased $1,770,230 or 116% to $3,300,650 as compared to the same period in 2010 and includes an increase of $1,561,990 related to Hygiene Acquisitions. Excluding the impact of Hygiene Acquisitions, other expenses for the three months ended September 30, 2011 as compared to the same period of 2010, increased $208,240 or 13.6% to $1,738,660. This increase was primarily due to the expansion of our business and costs related to being a public company, which includes an increase of $113,000 for professional expenses and an increase of $95,240 for marketing, travel, and insurance expenses.

Acquisition and merger expenses

Acquisition and merger expenses decreased $781,763 or 54.8% to $644,092 for the three months ended September 30, 2011 as compared to $1,425,855 during the same period of 2010. The decrease in acquisition and merger costs is primarily due to lower costs of $980,594 related to the merger with CoolBrands, offset by an increase in costs of $198,831 directly related to the acquisition of our two franchisees and twenty independent companies during the three months ended September 30, 2011 as compared to costs directly related to acquisitions in the same period in 2010. These costs include costs for third party due diligence, legal, accounting, and professional service expenses.

Depreciation and amortization

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, 2011 increased $5,607,341 or 441% to $6,879,607 as compared to $1,272,266 during the same period of 2010. This increase includes $4,970,475 attributed to Acquisitions.

The increase in depreciation and amortization attributed to Acquisitions is primarily the result of amortization for acquired other intangible assets including customer relationships and non-compete agreements obtained in connection with these acquisitions. The remaining increase is primarily related to depreciation on capital expenditures of $14,955,983 made since September 30, 2010.

Other expense, net

Other expense, net for the three months ended September 30, 2011 and 2010 are as follows:

 

     Three Months Ended September 30,  
     2011     2010  

Interest income

   $ 126,296      $ 13,196   

Interest expense

     (933,901     (371,093

Net gain on debt related fair value measurements

     590,100        —     

Foreign currency loss

     (106,079 )     —     
  

 

 

   

 

 

 

Total other expense, net

   $ (323,584   $ (357,897
  

 

 

   

 

 

 

Interest expense represents interest on borrowings under our credit facilities, equipment financing loans, notes incurred in connection with acquisitions, including convertible promissory notes, advances from shareholders, and the purchase of equipment and software. Interest expense for the three months ended September 30, 2011 increased $562,808 or 152% to $933,901 as compared to the same period of 2010. This increase is primarily due to interest on additional borrowings of $14,053,000 on our lines of credit and equipment financing loans, and approximately $6,174,000 of additional notes payable from acquisitions, including convertible promissory notes, during the three months ended September 30, 2011 as compared to the same period in 2010.

For the three months ended September 30, 2011, the net gain on debt related fair value measurements is related to the required adjustment each reporting period for the fair value of the convertible promissory notes. The fair value of these convertible promissory notes is impacted by the market price of our stock. See Note 7 of the Condensed Consolidated Financial Statements.

 

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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

Revenue

Total revenue and the revenue derived from each revenue type by segment for the nine months ended September 30, 2011 and 2010 is as follows:

 

     2011      % of
Total
Revenue
    2010      % of
Total
Revenue
 

Revenue

          

Hygiene products and services

          

Chemical

   $ 57,351,717         39.2   $ 12,705,752         27.6

Chemical wholesale

     6,218,107         4.3        —           —     

Hygiene services

     18,870,559         12.9        13,142,945         28.6   

Paper and supplies

     12,360,577         8.5        9,150,729         19.9   

Rental and other

     6,851,843         4.6        4,490,281         9.8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total hygiene product and services

     101,652,803         69.5        39,489,707         85.9   

Waste

          

Services

     37,597,816         25.7        —           —     

Products

     4,045,545         2.8        —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Total products and service

     143,296,164         98.0        39,489,707         85.9   

Hygiene franchise

     2,981,209         2.0        6,463,863         14.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 146,277,373         100.0 %    $ 45,953,570         100.0 % 
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated revenue increased $100,323,803 or 218% to $146,277,373 for the nine months ended September 30, 2011 as compared to the same period in 2010. This increase includes $41,643,361 related to Waste Acquisitions and an increase of $52,166,833 from Hygiene Acquisitions, which is offset by a $3,623,339 loss in franchise revenue earned during the nine months ended September 30, 2011 related to Hygiene Acquisitions. Excluding the impact of Acquisitions, consolidated revenue increased $10,136,948 or 22.1% to $56,090,518 for the nine months ended September 30, 2011.

Hygiene products and services revenue increased $62,163,096 or 157% during the nine months ended September 30, 2011 as compared to the same period in 2010. This increase includes $52,166,833 related to Hygiene Acquisitions. Excluding the impact from Hygiene Acquisitions, hygiene products and services revenue increased $9,996,263 or 25.3% to $49,485,970.

Since 2010, our overall revenue mix has continued to shift towards our core chemical product and service revenue from our legacy hygiene business. Factors have contributed to this trend include: (i) our acquisition efforts have been heavily focused at chemical product and service companies as we have rounded out our North American operating footprint: (ii) we have placed particular emphasis on the development of our core markets including our chemical offering, particularly as it relates to ware washing and laundry solutions and a lesser focus on our legacy hygiene service offerings; and (iii) we continue to aggressively managed customer profitability terminating less favorable arrangements.

Hygiene franchise revenue decreased $3,482,654 or 53.9% for the nine months ended September 30, 2011 as compared to the same periods in 2010. This decrease includes $3,623,339 from Hygiene Acquisitions for the nine months ended September 30, 2011 as compared to the comparable period in 2010. Reacquiring certain of our franchisees during the period result in less revenue from franchisee revenue, which is offset by an increase in hygiene product and service revenue from the remaining franchisees and international licensees. Excluding the impact from Hygiene Acquisitions, hygiene franchise revenue increased $140,685 during the nine months ended September 30, 2011 as compared to the same period in 2010.

Cost of Sales

Cost of sales for the nine months ended September 30, 2011 and 2010 are as follows:

 

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     2011      %(1)     2010      %(1)  

Hygiene

          

Company owned operations

   $ 34,767,873         36.4   $ 12,963,597         32.8

Chemical wholesale

     4,116,118         66.2        —           —     

Franchisee product sales

     1,780,830         81.3        3,906,599         92.2   

Waste

     12,451,318         29.9        —           —     
  

 

 

      

 

 

    

Total cost of sales

   $ 53,116,139         36.3   $ 16,870,196         42.7
  

 

 

      

 

 

    

 

(1) Represents cost as a percentage of the respective segment’s product and service line revenue.

Consolidated cost of sales for the nine months ended September 30, 2011 increased $36,245,943 or 215% to $53,116,139 as compared to the same period in 2010. This increase includes $12,451,318 related to Waste Acquisitions and $21,090,320 from Hygiene Acquisitions in the nine months ended September 30, 2011 as compared to the same period of 2010. Included in the increase from Hygiene Acquisitions is $4,116,118 of costs sales related to chemical wholesale revenue. Excluding the impact from Acquisitions, consolidated cost of sales increased $2,704,305 or 16.0 % to $19,574,501 for the nine months ended September 30, 2011 as compared to the same period in 2010.

Hygiene company owned operations cost of sales for the nine months ended September 30, 2011 increased $21,804,276 or 168% to $34,767,873 as compared to the same period in 2010 and includes $16,974,202 related to Hygiene Acquisitions. Excluding the impact of Hygiene Acquisitions, cost of sales for company owned operations increased $4,830,074 or 37.3% to $17,793,671 or 36.0% of related revenue for the nine months ended September 30, 2011 as compared to 32.8% for the same period in 2010. During the nine months ended September 30, 2011, the increase of $4,830,074 consisted of an increase of $1,791,318 or 13.8% related to the change in our revenue mix as our revenue mix has shifted toward higher cost chemical product revenue, an increase of $3,161,579 or 24.4% due to the current periods higher product revenue volume, offset by a decrease of $122,823 or 0.9% related to reduced cost of products.

Hygiene cost of sales to franchisees for the nine months ended September 30, 2011 decreased $2,125,769 or 54.4% to $1,780,830 as compared to the same period in 2010 in part due to Hygiene Acquisitions. We charge franchises a percentage of our costs, and, therefore, we earn a lower margin on product revenue to franchises. Excluding the effect of Hygiene Acquisitions, cost of goods sold increased $286,231 during the nine months ended September 30, 2011 as compared to the same period in 2010.

Route expenses

The details of route expenses for the nine months ended September 30, 2011 and 2010 are as follows:

 

     2011      %(1)     2010      %(1)  

Hygiene

          

Compensation

   $ 15,618,899         16.4   $ 6,979,410         17.7

Vehicle and other

     5,583,413         5.9        2,880,230         7.3   

Waste

     13,689,990         32.9        —           —     
  

 

 

      

 

 

    

Total route expenses

   $ 34,892,302         25.5   $ 9,859,640         25.0
  

 

 

      

 

 

    

 

(1) Represents cost as a percentage of Products and Services revenue, excluding chemical wholesale revenue, for the respective operating segment. Chemical wholesale revenue is excluded as it does not have associated route expenses.

Consolidated route expenses for the nine months ended September 30, 2011 increased $25,032,662 or 254% to $34,892,302 and 25.5% of hygiene product and service revenue, excluding chemical wholesale, as compared to 25.0% for the same period in 2010. This increase includes $13,689,990 related to Waste Acquisitions and $9,066,511 related to Hygiene Acquisitions. Excluding the impact of Acquisitions, route expenses increased $2,276,161 or 23.1% to $12,135,801 or 24.5% of related revenue for the nine months ended September 30, 2011 as compared to 25.0% for the same period in 2010, primarily due to route consolidation and optimization initiatives combined with a higher revenue base. The increase of $2,276,161 consisted primarily of $1,356,243 or 13.8% in compensation and $919,918 or 9.3% in vehicle and

 

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other route expenses. These increases are primarily the result of headcount and vehicles added as part of a distribution agreement entered into in December 2010.

Selling, general, and administrative

The details of selling, general, and administrative expenses nine months ended September 30, 2011 and 2010 are as follows:

 

     2011      %(1)     2010      %(1)  

Hygiene

          

Compensation

   $ 32,528,432         31.1   $ 14,625,279         31.8

Occupancy

     3,679,846         3.5        2,435,527         5.3   

Other

     9,015,254         8.6        3,834,592         8.3   

Waste

     8,623,527         20.7        —           —     
  

 

 

      

 

 

    

Total selling, general, and administration expenses

   $ 53,847,059         36.8   $ 20,895,398         45.5
  

 

 

      

 

 

    

 

(1) Represents cost as a percentage of revenue for the respective segment.

Consolidated selling, general, and administrative expenses for the nine months ended September 30, 2011 increased $32,951,661 or 158% as compared to the same period of 2010. This increase includes $8,623,527 related to Waste Acquisitions and $14,100,095 related to Hygiene Acquisitions. Excluding the impact of Acquisitions, selling, general, and administrative expenses increased $10,228,039 or 48.9% to $31,123,437.

Hygiene compensation for the nine months ended September 30, 2011 increased $17,903,153 or 122% to $32,528,432 as compared to the same period of 2010 and includes an increase of $9,811,906 related to Hygiene Acquisitions. Excluding the impact of Hygiene Acquisitions, hygiene compensation expense for the nine months ended September 30, 2011 as compared to the same period in 2010 increased $8,091,247 or 55.3% to $22,716,526. This increase was primarily the result of an increase of approximately $4,711,000 in costs and expenses related to our expansion of our corporate, field and distribution sales organizations to accelerate the growth in the our core chemical program, and an increase of approximately $3,380,247 of salaries and other costs largely associated with our transition from a private company to a public company, which includes $2,348,427 for stock based compensation.

Occupancy expenses for the nine months ended September 30, 2011 increased $1,244,319 or 51.1% to $3,679,846 as compared to the same period of 2010, which includes an increase of $1,209,162 related to Hygiene Acquisitions. Excluding the impact of these acquisitions, occupancy expenses for nine months ended September 30, 2011, as compared to the same period of 2010, increased $35,157 or 1.4%.

Other expenses for nine months ended September 30, 2011 increased $5,180,662 or 135% to $9,015,254 as compared to the same period in 2010 and includes an increase of $3,079,027 for Hygiene Acquisitions. Excluding the impact of these acquisitions, other expenses for the nine months ended September 30, 2011 as compared to the same period of 2010, increased $2,101,635 or 54.8% to $5,936,227. This increase was primarily due to the expansion of our business and includes an increase of $1,406,394 for professional fees of associated with being a public company and $695,241 for marketing, insurance, and travel costs.

Acquisition and merger expenses

Acquisition and merger expenses increased $3,309,473 or 232% to $4,735,328 for the nine months ended September 30, 2011 as compared to $1,425,855 during the same period of 2010. The increase in acquisition and merger expenses is primarily due to an increase in costs of $2,345,709 directly-related to the acquisition of our nine franchisees and forty-five independent companies during the nine months ended September 30, 2011 and an increase of $963,764 related to the merger with CoolBrands during the nine months ended September 30, 2011 as compared to the same period in 2010. These costs include costs for third party due diligence, legal, accounting and professional service expenses.

Depreciation and amortization

Depreciation and amortization for the nine months ended September 30, 2011 increased $12,272,979 or 361% to $15,671,983 as compared to $3,399,004 during the same period of 2010. This increase includes $10,160,916 attributed to Acquisitions.

The increase in depreciation and amortization attributed to Acquisitions is primarily the result of amortization for acquired other intangible assets including customer relationships and non-compete agreements obtained in connection with these acquisitions. The remaining increase is primarily related to depreciation on capital expenditures of $14,955,983 made since September 30, 2010.

 

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Other expense, net

Other expense, net for the nine months ended September 30, 2011 and 2010 are as follows:

 

     Nine Months Ended September 30,  
     2011     2010  

Interest income

   $ 223,320      $ 49,877   

Interest expense

     (1,644,121     (1,053,513

Net loss on debt related fair value measurements

     (4,925,900     —     

Foreign currency gain

     57,388        —     
  

 

 

   

 

 

 

Total other expense, net

   $ (6,289,313   $ (1,003,636
  

 

 

   

 

 

 

Interest expense represents interest on borrowings under our credit facilities, equipment financing loans, notes incurred in connection with acquisitions including convertible promissory notes, advances from shareholders, and the purchase of equipment and software. Interest expense for the nine months ended September 30, 2011 increased $590,608 or 56.1% to $1,644,121 as compared to the same period of 2010. This increase is primarily due to interest on additional borrowings of $14,053,000 on our lines of credit and equipment financing loans, and approximately $6,174,000 of additional notes payable from acquisitions, including convertible promissory notes, during the nine months ended September 30, 2011 as compared to the same period in 2010.

For the nine months ended September 30, 2011, the net loss on debt related fair value measurements is related to the required adjustment each reporting period for the fair value of the convertible promissory notes. The fair value of these convertible promissory notes is impacted by the market price of our stock. See Note 7 of the Condensed Consolidated Financial Statements.

Cash Flow Summary

The following table summarizes cash flows for the nine months ended September 30, 2011 and 2010:

 

     2011     2010  

Net cash used in operating activities

   $ (16,848,906   $ (948,085

Net cash used in investing activities

     (103,087,994     (4,547,192

Net cash provided by financing activities

     164,790,465        4,868,553   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 44,853,565      $ (626,724
  

 

 

   

 

 

 

Operating Activities

For the nine months ended September 30, 2011, net cash used in operating activities increased $15,900,821 to $16,848,906, compared with net cash used in operating activities of $948,085 for the same period of 2010. The increase includes $6,598,112 of increased losses, including an increase in $3,309,473 of acquisition and merger expenses, offset by non-cash items of $11,073,408, and changes in working capital of $20,376,117, primarily related to increased balances of accounts receivable, inventory and accounts payables due to the continued growth of our business.

Investing Activities

For the nine months ended September 30, 2011, net cash used in investing activities increased $98,540,802 to $103,087,994 compared with net cash used in investing activities of $4,547,192 for the same period of 2010. This increase is due to an increase in cash paid, net of issuance costs and cash acquired, for acquisitions of $94,039,102, an increase in capital expenditures of $9,695,033, offset by the release of restrictions on certain cash balances of $5,193,333.

Financing Activities

For the nine months ended September 30, 2011, cash provided by financing activities increased $159,921,912 to $164,790,465, compared with net cash provided by financing activities of $4,868,553 during the same period in 2010. Net cash provided from financing activities consists primarily of: (i) cash received from private placements; (ii) principal payments of debt, including debt assumed in the acquisition of Choice; (iii) net borrowing under credit facilities and equipment financing loans; (iv) proceeds from stock option and warrant exercises; and (v) proceeds from advances and distributions to shareholders.

 

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During the nine months ended September 30, 2011, we received $191,334,372, net of issuance costs, from the issuance of 34,119,643 shares of our common stock; we repaid $39,219,160 of debt assumed in the acquisition of Choice; received net cash of $13,730,503 from our credit facilities and equipment financing loans; we received $3,366,716 from the exercise of stock options and warrants; our principal payments on debt increased by $2,540,519; and our net proceeds and payment of shareholder advances decreased by $6,750,000 as compared to the same period in 2010.

Liquidity and Capital Resources

We fund the development and growth of our business with cash generated from operations, shareholder advances, bank credit facilities, the sale of equity, third party financing for acquisitions, and capital leases for equipment.

Revolving credit facilities

In March 2011, we entered into a $100 million senior secured revolving credit facility (the “credit facility”). Borrowings under the credit facility are secured by a first priority lien on substantially all of our existing and hereafter acquired assets, including $25 million of cash on borrowings in excess of $75 million. Furthermore, borrowings under the facility are guaranteed by all of our domestic subsidiaries and secured by substantially all the assets and stock of our domestic subsidiaries and substantially all of the stock of our foreign subsidiaries. Interest on borrowings under the credit facility will typically accrue at London Interbank Offered Rate (“LIBOR”) plus 2.5% to 4.0%, depending on the ratio of senior debt to (“Adjusted EBITDA”) (as such term is defined in the credit facility, which includes specified adjustments and allowances authorized by the lender). For the three months ended September 30, 2011, interest accrued based on LIBOR plus 2.5%. We also have the option to request swingline loans and borrowings using a base rate. Interest is payable monthly or quarterly on all outstanding borrowings. The credit facility matures in July 2013.

Borrowings and availability under the credit facility are subject to compliance with financial covenants, including achieving specified consolidated Adjusted EBITDA levels and maintaining leverage and coverage ratios and a minimum liquidity requirement. The consolidated Adjusted EBITDA covenant, the leverage and coverage ratios, and the minimum liquidity requirements should not be considered indicative of our expectations regarding future performance. The credit facility also places restrictions on our ability to incur additional indebtedness, make certain acquisitions, create liens or other encumbrances, sell or otherwise dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. In August 2011, we entered into an amendment that modified the covenants, including an increase in permitted indebtedness to $40.0 million. Failure to achieve or maintain the financial covenants in the credit facility or failure to comply with one or more of the operational covenants could adversely affect our ability to borrow monies and could result in a default under the credit facility. The credit facility is subject to other standard default provisions. We were in compliance with such covenants as of September 30, 2011.

The credit facility replaces our prior $25 million aggregated credit facilities, which are discussed in the 2010 Annual Report.

In August 2011, the Company entered into an agreement, which provides financing up to $16.4 million for new and used trucks, carts, compactors, and containers for our Waste segment. The financing will consist of one or more fixed rate loans that have a term of five years. The interest rate for borrowings under this facility will be determined at the time of each such borrowing and will be based on a spread over the five year U.S. swap rate. The commitment letter expires in February 2012 with a renewal option of six months, if approved. During the three months ended September 30, 2011, borrowings of $8.9 million were made at an average interest rate of 3.55%.

Separately in August 2011, we entered into an agreement to finance new and replacement vehicles for its fleet that allows for one or more fixed rate loans totaling in the aggregate, no more than $18.6 million. The commitment, which expires in June 2012, is secured by Waste segment’s vehicles and containers. The interest rate for borrowings under this facility will be determined at the time of the loan and will be based on a spread above the U.S swap rate for the applicable term, either four or five years. Borrowings under this loan commitment are subject to the same financial convents as the above credit facility. During the three months ended September 30, 2011, borrowings of $5.3 million were made at an average interest rate of 4.47%.

In addition, in August 2011, we obtained an additional line of credit of $25 million for new and replacement vehicles for its fleet and obtained a commitment letter to finance information technology and related equipment not to exceed $2.5 million. The interest rate and term for each fixed rate loan will be determined at the time of each such borrowing and will be based on a spread over the U.S. swap rate for the applicable term. The commitment expires in August 2014. During the three months ended September 30, 2011, we have not made any borrowings under these agreements.

Private Placements

In connection with the merger with Choice, on February 23, 2011, we entered into an agency agreement, which the agents agreed to market, on a best efforts basis 12,262,500 subscription receipts (“Subscription Receipts”) at a price of $4.80 per Subscription Receipt for gross proceeds of up to $58,859,594. Each Subscription Receipt entitled the holder to acquire one share of our common stock, without payment of any additional consideration, upon completion of our acquisition of Choice.

 

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On March 1, 2011, we closed the acquisition of Choice and issued 8,281,920 shares of our common stock to the former shareholders of Choice for which we received cash of $56,253,791, net of issuance costs and assumed $40,941,484 of debt, of which $39,219,160 was paid down with proceeds from the private placement of the Subscription Receipts.

In connection with the closing of acquisition of Choice, the 12,262,500 Subscription Receipts were exchanged for 12,262,500 shares of our common stock. We agreed to use commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock underlying the Subscription Receipts. If the registration statement was not filed or declared effective within specified time periods, or if the registration statement had ceased to be effective for a period of time exceeding certain grace periods between the date such shares of common stock were issued and November 10, 2011, the initial subscribers of Subscription Receipts would have been entitled to receive an additional 0.1 share of common stock for each share of common stock underlying Subscription Receipts held by any such initial subscriber at the time such grace period lapsed. The Company filed a resale registration statement with the SEC relating to the 8,281,920 shares issued to the former shareholders of Choice and the 12,262,500 shares issued in connection with the private placement. The registration statement was effective as of the date of this filing.

On March 22, 2011, we entered into a series of arm’s length securities purchase agreements to sell 12,000,000 shares of our common stock at a price of $5.00 per share, for aggregate proceeds of $60,000,000 to certain funds of a global financial institution (the “Private Placement”). We intend to use the proceeds from the Private Placement to further our organic and acquisition growth strategy, as well as for working capital purposes.

On March 23, 2011, we closed the Private Placement and issued 12,000,000 shares of our common stock. Pursuant to the securities purchase agreements, the shares of common stock issued in the Private Placement may not be transferred on or before June 24, 2011 without our consent. We agreed to use our commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock sold in the Private Placement. If the registration statement was not filed or declared effective within specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding certain grace periods, the investors will be entitled to receive liquidated damages in cash equal to one percent of the original offering price for each share purchased in the private placement that at such time cannot be sold by the investor as a result of the registration statement not being effective. The Company filed a resale registration statement with the SEC relating to the 12,000,000 shares issued in the private placement. The registration statement was effective as of the date of this filing.

On April 15, 2011, we entered into a series of arm’s length securities purchase agreements to sell 9,857,143 shares of our common stock at a price of $7.70 per share, for aggregate proceeds of $75,900,000 to certain funds of a global financial institution. We completed this transaction on April 19, 2011 and we intend to use the proceeds from this transaction to further our organic and acquisition growth strategy, as well as for working capital purposes. Pursuant to the securities purchase agreements, we agreed to use commercially reasonable efforts to file, after July 24, 2011, a resale registration statement with the SEC relating to the shares of common stock sold in the private placement. If the registration statement was not filed or declared effective within the specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding certain grace periods, the investors will be, entitled to receive liquidated damages in cash equal to one percent of the original offering price for each share purchased in the private placement that at such time cannot be sold by the investor as a result of the registration statement not being effective. The Company filed a resale registration statement with the SEC relating to the 9,857,143 shares. The registration statement was effective as of the date of this filing.

Acquisitions

During the three month period ended September 30, 2011, we paid cash of $27.9 million for acquisitions. During the nine month period ended September 30, 2011, we paid cash of $95.3 million for acquisitions, which $7.2 million was for the acquisition of Choice. In addition subsequent to September 30, 2011, we acquired several businesses. While the terms, price, and conditions of each of these acquisitions were negotiated individually, consideration to the sellers typically consists of a combination of cash, our common stock, and debt issued. Aggregate consideration paid for these acquired businesses was approximately $12.4 million consisting of approximately $8.0 million in cash, 81,419 shares of our common stock, and issuance of promissory notes that may be converted into 1,026,875 shares of our common stock subject to certain customary restrictions, including acceptance by the Toronto Stock Exchange.

Cash Requirements

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, equipment, vehicles, and software; (ii) financing for acquisitions; (iii) working capital; and (iv) payment of principal and interest on borrowings under our credit facility, equipment financing borrowings, debt obligations and convertible promissory notes issued or assumed in connection with acquisitions, and other notes payable for equipment and software.

As a result of the Private Placements discussed above our cash and cash equivalents increased by $192,153,791 and were $83,785,303 at September 30, 2011. 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 twelve 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.

 

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Income Taxes

As a result of the merger with CoolBrands in November 2010, as discussed in Note 1 in the in the 2010 Annual Report, the Company converted from a corporation taxed under the provisions of Subchapter S of the Internal Revenue Code to a tax-paying entity and accounts for income taxes under the asset and liability method. Therefore, for the nine months ended September 30, 2011, the Company has recorded an estimate for income taxes based on the Company’s taxable operating results for the year ending December 31, 2011 and an effective income tax rate of 26.1%. Certain estimates, such as the Company’s projected operating results and the treatment of gains and losses on debt related fair value measurements used in calculating the effective tax rate were revised during the three months ended September 30, 2011, which resulted in the Company recording $46,384 of income tax expense and $8,176,480 of income tax benefit for the three and nine months ended September 30, 2011.The amount of income tax expense or benefit to be recorded in future periods is based on our estimate of the full year’s net income, which we cannot predict with certainty.

In addition, during 2011, the Company reversed the valuation allowance of $2,368,000 recorded as of December 31, 2010 as a result of the Company’s expectation to utilize its deferred tax assets through the generation of future taxable income arising from deferred tax liability balances. The majority of these deferred tax liabilities were recorded as part of the acquisition of Choice in March 2011 as discussed in Note 3.

Litigation and Other Contingencies

We are subject to legal proceedings and claims which arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our 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 we engaged in such relationships.

In connection with a distribution agreement entered into in December 2010, we provided a guarantee that the distributor’s operating cash flows associated with the agreement would not fall below certain agreed-to minimums, subject to certain pre-defined conditions, over the ten year term of the distribution agreement. If the distributor’s annual operating cash flow does fall below the agreed-to annual minimums, we will reimburse the distributor for any such short fall up to a pre-designated amount. No value was assigned to the fair value of the guarantee at September 30, 2011 and December 31, 2010 based on a probability assessment of the projected cash flows. Management currently does not believe that it is probable that any amounts will be paid under this agreement and thus there is no amount accrued for the guarantee in the Condensed Consolidated Financial Statements.

Adjusted EBITDA

In addition to net income determined in accordance with GAAP, we use certain non-GAAP measures, such as “Adjusted EBITDA”, in assessing our operating performance. We believe the non-GAAP measure serves as an appropriate measure to be used in evaluating the performance of our business. We define Adjusted EBITDA as net loss excluding the impact of income taxes, depreciation and amortization expense, interest expense and income, foreign currency gain, net gain/loss on debt related fair value measurements, stock based compensation, and third party costs directly related to merger and acquisitions. We present Adjusted EBITDA because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of our results. Management uses this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and gives a better indication of our core operating performance. We include this non-GAAP financial measure in our earnings announcement and guidance in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors. Adjusted EBITDA should not be considered in isolation from, and is not intended to represent an alternative measure of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Additionally, our definition of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

Under SEC rules, we are required to provide a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Accordingly, the following is a reconciliation of Adjusted EBITDA to our net losses for the three and nine month periods ended September 30, 2011 and 2010:

 

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     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  

Net loss

   $ (3,756,534   $ (4,135,080   $ (14,098,271   $ (7,500,159

Income tax expense (benefit)

     46,384        —          (8,176,480     —     

Depreciation and amortization expense

     6,879,607        1,272,266        15,671,983        3,399,004   

Interest expense, net

     807,605        357,897        1,420,801        1,003,636   

Foreign currency (gain)/loss

     106,079        —          (57,388     —     

Net gain/loss on debt related fair value measurements

     (590,100 )     —          4,925,900        —     

Stock based compensation

     1,118,788        —          2,881,227        —     

Acquisition and merger expenses

     644,092        1,425,855        4,735,328        1,425,855   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 5,255,921      $ (1,079,062   $ 7,303,100      $ (1,671,664
  

 

 

   

 

 

   

 

 

   

 

 

 

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 Form 10-Q, 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 Form 10-Q 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, except to the extent required by applicable law. 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 stockholders 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 attract, train, and retain personnel to 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 our acquired businesses;

 

   

We may recognize impairment charges which could adversely affect our results of operations and financial condition;

 

   

Goodwill resulting from acquisitions may adversely affect our results of operations;

 

   

Future issuances of our common stock in connection with acquisitions could have a dilutive effect on your investment;

 

   

Future sales of Swisher Hygiene shares by our stockholders could affect the market price of our shares;

 

   

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;

 

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Failure to retain our current customers and renew existing customer 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 conditions that impact the industries in which our end-users primarily operate in could adversely affect our business;

 

   

Our solid waste collection operations are geographically concentrated and are therefore subject to regional economic downturns and other regional factors;

 

   

If we are required to change the pricing models for our products or services to compete successfully, our margins and operating results may be adversely affected;

 

   

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 could have a material adverse impact on our business, financial condition and results of operations;

 

   

The financial condition and operating ability of third parties may adversely affect our business;

 

   

The volatility of our raw material costs may adversely affect our operations;

 

   

Increases in fuel and energy costs could adversely affect our results of operations and financial condition;

 

   

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;

 

   

Future changes in laws or renewed enforcement of laws regulating the flow of solid waste in interstate commerce could adversely affect our results of operations and financial condition;

 

   

If our products are improperly manufactured, packaged, or labeled 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;

 

   

Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business;

 

   

Our current size and growth strategy could cause our revenue and operating results to fluctuate more than some of our larger, more established competitors or other public companies;

 

   

Certain stockholders may exert significant influence over corporate action requiring stockholder approval; 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.

 

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ITEM 3. 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 increases 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.

ITEM 4. CONTROLS AND PROCEDURES.

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We may be involved in litigation from time to time in the ordinary course of business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our business, financial condition or results of operations. However, the results of these matters cannot be predicted with certainty and we cannot assure you that the ultimate resolution of any legal or administrative proceedings or disputes will not have a material adverse effect on our business, financial condition and results of operations.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, as updated in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, which could materially affect our business, financial condition, or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We issued the following shares of common stock during the quarter ended September 30, 2011:

 

  (a) On July 22, 2011, in connection with the acquisition of GLC Linen, LLC, the Company issued a convertible promissory note, which may be converted into a maximum of 201,925 shares of our common stock to GLC Linen, LLC;

 

  (b) On August 12, 2011, in connection with the acquisition of certain assets of North Texas Hygiene, Inc., the Company issued a convertible promissory note, which may be converted into a maximum of 362,000 shares of our common stock to North Texas Hygiene, Inc.;

 

  (c) On August 16, 2011, in connection with the acquisition of certain assets of Washing Systems, LLC, the Company issued a convertible promissory note, which may be converted into a maximum of 150,000 shares of our common stock to Washing Systems, LLC.;

 

  (d) On August 16, 2011, in connection with the acquisition of GJB Services, Inc., the Company issued a convertible promissory note, which may be converted into a maximum of 73,438 shares of our common stock to GJB Services, Inc.;

 

  (e) On August 26, 2011, in connection with the acquisition of certain assets of Professional Service & Supply, Inc., the Company issued a convertible promissory note which may be converted into a maximum of 101,625 shares of our common stock to Professional Service & Supply, Inc.;

 

  (f) On August 30, 2011, in connection with the acquisition of Kitter Corporation, the Company issued a convertible promissory note which may be converted into a maximum of 237,500 shares of our common stock to Kitter Corporation;

 

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  (g) On August 30, 2011, in connection with the acquisition of Sanico Mat Rentals, LLC, the Company issued a convertible promissory note which may be converted into a maximum of 101,563 shares of our common stock to Sanico Mat Rentals, LLC;

 

  (h) On September 1, 2011, in connection with the acquisition of certain assets of Evergreen Hygiene Company, the Company issued a convertible promissory note which may be converted into a maximum of 313,040 shares of our common stock to Evergreen Hygiene Company;

 

  (i) On September 12, 2011, in connection with the acquisition of Go! Hospitality Services, LLC, the Company issued a convertible promissory note which may be converted into a maximum of 181,250 shares of our common stock to Go! Hospitality Services, LLC;

 

  (j) On September 23, 2011, in connection with the acquisition of certain assets of LTD of Wisconsin, Inc., dba Midwest Alchemist, the Company issued a convertible promissory note which may be converted into a maximum of 56,250 shares of our common stock to LTD of Wisconsin, Inc. dba Midwest Alchemist; and

 

  (k) On September 27, 2011, in connection with the acquisition of certain assets of Try-Chem Services, LLC, the Company issued a convertible promissory note which may be converted into a maximum of 75,000 shares of our common stock to Try-Chem Services, LLC.

The issuance of the securities described in paragraphs (a) through (k) above were exempt from the registration requirements of the Securities Act afforded by Section 4(2) thereof and Regulation D promulgated thereunder, which exception Swisher Hygiene believes is available because the securities were not offered pursuant to a general solicitation and such issuances were otherwise made in compliance with the requirements of Regulation D and Rule 506. The securities issued in these transactions 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.

ITEM 6. EXHIBITS.

 

Exhibit

Number

  

Description

10.1    First Amendment to Credit Agreement and Pledge and Security Agreement, dated August 12, 2011, by and between Swisher Hygiene Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 18, 2011).
10.2    General Electric Capital Corporation Loan Commitment Letter, dated August 12, 2011 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2011).
10.3    Master Loan and Security Agreement, dated August 12, 2011, by and between General Electric Capital Corporation and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2011).
10.4    Amendment to Master Loan and Security Agreement, dated August 12, 2011, by and between General Electric Capital Corporation and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2011).
10.5    Wells Fargo Equipment Finance, Inc. Loan Commitment Letter dated August 12, 2011 (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2011).
10.6    Master Loan and Security Agreement dated August 12, 2011, by and between Wells Fargo Equipment Finance, Inc. and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2011).
10.7    Automotive Rental, Inc. Vehicle Lease Financing Proposal, dated August 12, 2011 (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2011).
31.1    Section 302 Certification of Chief Executive Officer.

 

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  31.2    Section 302 Certification of Chief Financial Officer.
  32.1    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
  32.2    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS    XBRL Instance Document.**
101.SCH    XBRL Taxonomy Extension Schema.**
101.CAL    XBRL Taxonomy Extension Calculation Linkbase.**
101.LAB    XBRL Taxonomy Extension Label Linkbase.**
101.PRE    XBRL Taxonomy Extension Presentation Linkbase.**
101.DEF    XBRL Taxonomy Extension Definition Linkbase.**

 

* Furnished herewith.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

SWISHER HYGIENE INC.

(Registrant)

Dated: November 14, 2011

     
    By:  

/s/ STEVEN R. BERRARD

      Steven R. Berrard
     

President, Chief Executive Officer and Director

(Principal Executive Officer)

 

   
    By:  

/s/ MICHAEL J. KIPP

      Michael J. Kipp
     

Senior Vice President, Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: November 14, 2011      

 

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SWISHER HYGIENE INC. AND SUBSIDIARIES

EXHIBIT INDEX

 

Exhibit
Number

  

Description

  31.1    Section 302 Certification of Chief Executive Officer.
  31.2    Section 302 Certification of Chief Financial Officer.
  32.1    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase.
101.LAB    XBRL Taxonomy Extension Label Linkbase.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase.
101.DEF    XBRL Taxonomy Extension Definition Linkbase.

 

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