Sunair Services Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 16, 2005
SUNAIR SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
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Florida
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1-04334
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59-0780772 |
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(State or Other Jurisdiction
of Incorporation)
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(Commission
File Number)
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(I.R.S. Employer
Identification No.) |
3005 Southwest Third Avenue
Fort Lauderdale, Florida 33315
(Address of Principal Executive Office) (Zip Code)
(954) 525-1505
(Registrants telephone number, including area code)
Not Applicable
(Former Name or Former Address, If Changed Since Last Report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))
Section 9 Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
On December 16, 2005, Middleton Pest Control, Inc., an indirect wholly-owned
subsidiary of the Registrant, acquired substantially all of the assets
of Spa Creek Services, LLC, a Delaware limited liability company d/b/a Pest Environmental (Spa
Creek).
This Current Report on Form 8-K/A contains the information required by Item 9.01 of Form 8-K
relating to the acquisition of Spa Creek.
(a) |
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Financial Statements of Business Acquired. |
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The financial statements of Spa Creek are attached as Exhibit A to this Current Report on
Form 8-K/A. |
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(b) |
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Pro Forma Financial Information. |
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The pro forma financial information relating to the Spa Creek acquisition are attached as
Exhibit B to this Current Report on Form 8-K/A. |
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(c) |
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Shell company Transactions. |
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Not applicable. |
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(d) |
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Exhibits. |
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Not applicable. |
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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, hereunto duly authorized.
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SUNAIR SERVICES CORPORATION
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Date: February 28, 2006 |
By: |
/s/ SYNNOTT B. DURHAM
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Synnott B. Durham |
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Chief Financial Officer |
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3
EXHIBIT A
SPA CREEK SERVICES, LLC
AUDITED FINANCIAL STATEMENTS
CONTENTS
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Page |
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INDEPENDENT AUDITORS REPORT |
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1 |
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BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003 |
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2 |
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STATEMENTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 2004 AND 2003 |
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4 |
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STATEMENTS
OF MEMBERS DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 |
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5 |
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STATEMENTS
OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 |
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6 |
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NOTES TO FINANCIAL STATEMENTS |
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7 |
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INDEPENDENT AUDITORS REPORT
To the Board of Directors
Spa Creek Services, LLC
Brooksville, Florida
We have audited the accompanying balance sheets of Spa Creek Services, LLC (a Delaware Limited
Liability Company) as of December 31, 2004 and 2003 and the related statements of operations,
members deficit and cash flows for the years then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Spa Creek Services, LLC as of December 31, 2004 and 2003, and
the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/
Berenfeld Spritzer Shechter & Sheer
January 30, 2006
Sunrise, Florida
-1-
SPA CREEK SERVICES, LLC
BALANCE SHEETS
AS OF DECEMBER 31,
ASSETS
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2004 |
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2003 |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
666,991 |
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$ |
32,109 |
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Accounts receivable, net |
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112,339 |
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62,860 |
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Inventories |
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36,642 |
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34,792 |
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Prepaid and other current assets |
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33,758 |
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35,441 |
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Total Current Assets |
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849,730 |
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165,202 |
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Property, plant and equipment, net |
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242,235 |
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364,950 |
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OTHER ASSETS |
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Note receivable |
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123,660 |
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Non-compete agreements, net |
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1,436,906 |
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1,080,220 |
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Goodwill |
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2,769,534 |
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1,955,503 |
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Total Other Assets |
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4,330,100 |
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3,035,723 |
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TOTAL ASSETS |
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$ |
5,422,065 |
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$ |
3,565,875 |
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The accompanying notes are an integral part of these financial statements.
-2-
SPA CREEK SERVICES, LLC
BALANCE SHEETS
AS OF DECEMBER 31,
LIABILITIES AND MEMBERS DEFICIT
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2004 |
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2003 |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
31,062 |
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17,764 |
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Accrued expenses |
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331,126 |
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186,019 |
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Customer deposits |
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264,925 |
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378,859 |
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Notes payable, current portion |
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107,685 |
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1,000 |
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Notes payable related party |
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6,183,755 |
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4,127,105 |
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Total Current Liabilities |
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6,918,553 |
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4,710,747 |
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Notes payable, net of current portion |
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349,501 |
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30,000 |
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Total Liabilities |
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7,268,054 |
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4,740,747 |
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MEMBERS DEFICIT: |
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Contributed capital |
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500,000 |
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391,650 |
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Accumulated deficit |
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(2,345,989 |
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(1,566,522 |
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Total Members Deficit |
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(1,845,989 |
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(1,174,872 |
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TOTAL LIABILITIES AND MEMBERS DEFICIT |
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$ |
5,422,065 |
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$ |
3,565,875 |
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The accompanying notes are an integral part of these financial statements.
-3-
SPA CREEK SERVICES, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
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2004 |
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2003 |
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SALES |
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$ |
4,657,186 |
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$ |
3,011,281 |
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COST OF SALES |
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1,450,557 |
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870,523 |
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GROSS PROFIT |
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3,206,629 |
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2,140,758 |
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SELLING AND ADMINISTRATIVE EXPENSES |
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3,919,481 |
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2,746,593 |
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LOSS FROM OPERATIONS |
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(712,852 |
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(605,835 |
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OTHER INCOME (EXPENSES): |
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Interest income |
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2,242 |
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883 |
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Interest expense |
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(83,027 |
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(65,925 |
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Gain (loss) on disposal of asset |
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7,670 |
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(1,705 |
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Other income |
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6,500 |
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773 |
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Total Other Expenses |
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(66,615 |
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(65,974 |
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NET LOSS |
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$ |
(779,467 |
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$ |
(671,809 |
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The accompanying notes are an integral part of these financial statements.
-4-
SPA CREEK SERVICES, LLC
STATEMENTS OF MEMBERS DEFICIT
YEARS ENDED DECEMBER 31, 2004 AND 2003
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CONTRIBUTED |
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ACCUMULATED |
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MEMBERS |
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CAPITAL |
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DEFICIT |
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DEFICIT |
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BALANCE, DECEMBER 31, 2002 |
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$ |
358,500 |
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$ |
(894,713 |
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$ |
(536,213 |
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CASH
CONTRIBUTIONS |
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33,150 |
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33,150 |
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NET LOSS DECEMBER 31, 2003 |
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(671,809 |
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(671,809 |
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BALANCE, DECEMBER 31, 2003 |
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391,650 |
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(1,566,522 |
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(1,174,872 |
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CASH CONTRIBUTIONS |
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108,350 |
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108,350 |
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NET LOSS DECEMBER 31, 2004 |
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(779,467 |
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(779,467 |
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BALANCE, DECEMBER 31, 2004 |
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$ |
500,000 |
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$ |
(2,345,989 |
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$ |
(1,845,989 |
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The accompanying notes are an integral part of these financial statements.
-5-
SPA CREEK SERVICES, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
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2004 |
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2003 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(779,467 |
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(671,809 |
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Adjustments to reconcile net loss to
net cash provided by (used in) operating activities: |
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Depreciation |
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109,252 |
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104,224 |
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Amortization |
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506,238 |
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311,644 |
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Bad debt reserve |
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29,000 |
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(Gain)/Loss on disposals |
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(7,670 |
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1,705 |
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(Increase) Decrease in Assets: |
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Accounts receivable |
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135,957 |
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8,077 |
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Inventories |
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9,023 |
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(4,782 |
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Prepaid and other current assets |
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1,684 |
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2,862 |
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Increase (Decrease) in Liabilities: |
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Accounts payable and accrued expenses |
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158,405 |
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101,870 |
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Customer deposits |
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(132,776 |
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3,769 |
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Net Cash Provided By (Used In)Operating Activities |
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29,646 |
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(142,440 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property, plant, and equipment |
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(31,974 |
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(67,549 |
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Cash paid for acquisition of pest control companies |
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(1,507,062 |
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(144,947 |
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Proceeds from sale of property |
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106,009 |
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51,657 |
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Net Cash Used In Investing Activities |
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(1,433,027 |
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(160,839 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayment of note payable |
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(126,737 |
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Repayment of line of credit |
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(215,000 |
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Proceeds from notes payable |
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2,056,650 |
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516,850 |
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Proceeds from contributed capital |
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108,350 |
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33,150 |
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Net Cash Provided By Financing Activities |
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2,038,263 |
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335,000 |
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NET INCREASE IN CASH
AND CASH EQUIVALENTS |
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634,882 |
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31,721 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
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32,109 |
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388 |
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CASH AND CASH EQUIVALENTS, END OF YEAR |
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$ |
666,991 |
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$ |
32,109 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid during the year for interest |
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$ |
3,927 |
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$ |
1,590 |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES: |
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The Company acquired assets in various acquisitions as follows: |
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Fair value of assets acquired |
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$ |
1,964,248 |
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$ |
175,947 |
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Cash paid for the assets |
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(1,507,062 |
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(144,947 |
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Liabilities incurred |
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$ |
457,186 |
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$ |
31,000 |
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The accompanying notes are an integral part of these financial statements.
-6-
SPA CREEK SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business activity
Spa Creek Services, LLC, a Delaware limited liability company d/b/a Pest Environmental
(the Company), provides pest control, lawn and shrub care, subterranean and drywood termite
control and mosquito reduction services to both residential and commercial customers in Central
Florida.
Basis of Presentation
The Company has prepared the financial statements in accordance with accounting principles
generally accepted in the United States of America.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or
less to be cash equivalents.
Accounts receivable
Accounts receivable consists of balances due from sales. The Company monitors accounts receivable
and provides allowances when considered necessary. As of December 31, 2004 and 2003, the Company
established an allowance of $79,000 and $50,000, respectively.
Inventories
Inventories are stated at the lower of cost or market value, cost being determined using the first
in, first out method.
Property, plant, and equipment
Property, plant and equipment are carried at cost. Depreciation is provided over the estimated
useful lives of the assets using the straight-line method. The estimated useful lives used to
compute depreciation are as follows:
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Furniture, fixtures and equipment
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5 to 7 years |
Leasehold improvements and vehicles
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5 years |
The cost of maintenance and repairs is charged to expense as incurred; renewals and betterments are
capitalized. When properties are retired or otherwise disposed of, the cost of such properties and
the related accumulated depreciation are removed from the accounts. Any profit or loss is
credited, or charged to income.
-7-
SPA CREEK SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of long-lived assets and long-lived assets to be disposed of
The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset to future
undiscounted cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the assets exceed the
fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. There were no assets impaired during the years ended December 31, 2004
and 2003.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash.
The Company maintains cash balances at one financial institution. The accounts at this financial
institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. From
time to time, the Company had cash in financial institutions in excess of federally insured limits.
As of December 31, 2004 and 2003, the company had cash in excess of FDIC limits of $562,437 and $0,
respectively.
Income Taxes
The Company exists as a Limited Liability Company and is taxed as a partnership. In lieu of
partnership income taxes, under the Internal Revenue Code the partners are taxed on their
proportionate shares of the Companys taxable income. Therefore, the accompanying financial
statements do not contain provisions or liabilities for federal and state income taxes.
Revenue recognition
Sales revenues are recorded at the time services are performed. Generally, pest control customers
sign an initial one year contract, and the Company defers recognition of these payments and
recognizes the revenue as services are performed.
Advertising costs
The Company expenses advertising costs as incurred. Advertising expenses totaled approximately
$348,770 and $218,664 for the years ended December 31, 2004 and 2003, respectively.
Fair value of financial instruments
The Companys financial instruments consist primarily of cash, accounts receivable, accounts
payable, accrued liabilities and loans and notes payable. The carrying amounts of such financial
instruments approximate their respective estimated fair values due to the short-term maturities and
approximate market interest rates of these instruments. The estimated fair value is not necessarily
indicative of the amounts the Company would realize in a current market exchange or from future
earnings or cash flows.
-8-
SPA CREEK SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 2 ACQUISITIONS
During the years ended December 31, 2004 and 2003, the Company entered into Asset Purchase
Agreements to acquire substantially all of the assets of various pest control businesses in order
to expand their market area.
The following table sets forth the allocation of the net purchase price of tangible and intangible
assets acquired and sold and liabilities assumed as of December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
Goodwill |
|
$ |
814,031 |
|
|
$ |
73,223 |
|
Non-compete agreements |
|
|
862,926 |
|
|
|
102,724 |
|
Accounts Receivable |
|
|
259,095 |
|
|
|
|
|
Inventory |
|
|
10,874 |
|
|
|
|
|
Property, plant and equipment |
|
|
36,164 |
|
|
|
|
|
Customer deposits |
|
|
(18,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,964,248 |
|
|
$ |
175,947 |
|
|
|
|
|
|
|
|
NOTE 3 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
Furniture, fixtures and equipment |
|
$ |
201,728 |
|
|
$ |
194,391 |
|
Leasehold improvements |
|
|
52,525 |
|
|
|
44,266 |
|
Vehicles |
|
|
182,900 |
|
|
|
283,891 |
|
|
|
|
|
|
|
|
|
|
|
437,153 |
|
|
|
522,548 |
|
|
Accumulated Depreciation |
|
|
194,918 |
|
|
|
157,598 |
|
|
|
|
|
|
|
|
|
|
$ |
242,235 |
|
|
$ |
364,950 |
|
|
|
|
|
|
|
|
Depreciation expense consists of $109,252 and $104,224 during the years ended December 31, 2004 and
2003, respectively.
NOTE 4 GOODWILL AND OTHER ASSETS
Intangibles consist primarily of goodwill and non-compete agreements, which are related to
businesses acquired. Goodwill represents the excess of the purchase price over the fair value of
net assets of businesses acquired. As of December 31, 2004 and 2003, the carrying amount of
goodwill was $2,769,534 and $1,955,503, respectively.
-9-
SPA CREEK SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 4 GOODWILL AND OTHER ASSETS (CONTINUED)
Pursuant to the acquisition of various pest control businesses, the Company recorded the
Non-Compete Agreements as intangible assets. The Company is amortizing Non-Compete Agreements over
their estimated economic life of 5 years. The carrying amount and accumulated amortization for the
Non-Compete Agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
Non-Compete Agreements |
|
$ |
2,512,820 |
|
|
$ |
1,649,894 |
|
Accumulated Amortization |
|
|
1,075,914 |
|
|
|
569,674 |
|
|
|
|
|
|
|
|
|
|
$ |
1,436,906 |
|
|
$ |
1,080,220 |
|
|
|
|
|
|
|
|
NOTE 5 NOTES PAYABLE
As part of the acquisitions, the Company incurred various promissory notes. The balance outstanding
due to these acquisitions for the years ended December 31, 2004 and 2003 totaled $457,186 and
$31,000, respectively. Interest rates on promissory notes vary from non-interest bearing to 7.5%
per annum. To reflect the time value of money on the non-interest bearing notes, the liability
recorded in the financial statements reflects future payments discounted at an imputed rate of 4%.
The promissory notes mature at various years through 2009.
The Company also entered into promissory notes with related parties to fund the operations of the
company. The notes bear interest at 2% per annum and are due on demand and therefore classified
as current liabilities on the accompanying balance sheets. The balance outstanding on the
promissory notes for the years ended December 31, 2004 and 2003 was $6,183,755 and $4,127,105,
respectively.
Maturities of notes payable as of December 31, 2004 were as follows:
|
|
|
|
|
Year ended December 31,
2005 |
|
$ |
6,291,440 |
|
2006 |
|
|
102,966 |
|
2007 |
|
|
107,077 |
|
2008 |
|
|
80,584 |
|
2009 |
|
|
58,874 |
|
|
|
|
|
Total notes payable |
|
$ |
6,640,941 |
|
|
|
|
|
-10-
SPA CREEK SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 6 SUBSEQUENT EVENT
On
December 16, 2005, Spa Creek Services, LLC entered into a
definitive Asset Purchase Agreement to
sell substantially all of their assets and certain liabilities to Middleton Pest Control, Inc. for
$5,500,000 cash.
-11-
EXHIBIT B
SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
CONTENTS
|
|
|
|
|
|
|
Page |
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
|
|
|
1 |
|
|
|
|
|
|
COMBINING BALANCE SHEET AS OF SEPTEMBER 30, 2005
|
|
|
2 |
|
|
|
|
|
|
COMBINING STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED SEPTEMBER 30, 2005
|
|
|
3 |
|
|
|
|
|
|
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
|
|
|
4 |
|
SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information gives effect to the
acquisition of Spa Creek Services, LLC d/b/a Pest Environmental (Spa Creek).
On December 16, 2005 (Effective Date), the Registrant, Sunair Services Corporation (Sunair)
completed an acquisition (the Acquisition), through its
indirect wholly owned-subsidiary Middleton Pest
Control, Inc. (Middleton), of substantially all the assets and assumption of certain liabilities
of Spa Creek. The Acquisition was consummated pursuant to the terms and provisions of an Asset
Purchase Agreement dated as of December 16, 2005. The consideration paid by Middleton consisted of
cash of $5,500,000 at the day of closing.
The unaudited pro forma condensed combined balance sheet gives effect to the Acquisition as if it
had occurred on October 1, 2004. The unaudited pro forma combined statements of operations for the
year ended September 30, 2005 gives effect to the Acquisition as if it had occurred at the
beginning of the earliest period presented.
The pro forma condensed combined financial information should be read in conjunction with the
Companys Form 10-KSB for the year ended September 30, 2005, as well as the Companys unaudited
Form 10-QSB for the quarter ended December 31, 2005 and the related notes included in this Current
Report on Form 8-K/A.
We are providing the pro forma financial information for illustrative purposes only. The results
may have been different had these transactions actually occurred during the periods presented. You
should not rely on the unaudited pro forma condensed combined financial information as being
indicative of the historical results that would have been achieved had the transactions actually
occurred during the periods presented or the future results that
Sunair will experience. The
unaudited pro forma condensed combining statements of operations do not give effect to any cost
savings or operating synergies expected to result from the acquisition and divestiture or the costs
to achieve such cost savings or operating synergies.
-1-
SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
COMBINING BALANCE SHEET
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunair and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 3 |
|
|
|
|
|
|
Subsidiaries |
|
|
Spa Creek |
|
|
Combined |
|
|
Pro-forma |
|
|
Pro-forma |
|
|
Pro-forma |
|
|
|
Historical |
|
|
Services, LLC |
|
|
Total |
|
|
Adjustments |
|
|
Adjustments |
|
|
Combined |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,220,699 |
|
|
$ |
649,669 |
|
|
$ |
3,870,368 |
|
|
$ |
9,457,515 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,733,419 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(649,669 |
) |
|
|
3 |
|
|
$ |
6,944,795 |
|
Accounts receivables, net |
|
|
4,983,714 |
|
|
|
108,572 |
|
|
|
5,092,286 |
|
|
|
(108,572 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,929 |
|
|
|
2 |
|
|
|
5,116,643 |
|
Interest receivable |
|
|
14,488 |
|
|
|
|
|
|
|
14,488 |
|
|
|
|
|
|
|
|
|
|
|
14,488 |
|
Inventories |
|
|
7,609,727 |
|
|
|
54,246 |
|
|
|
7,663,973 |
|
|
|
(54,246 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,475 |
|
|
|
2 |
|
|
|
7,676,202 |
|
Deferred tax asset |
|
|
315,837 |
|
|
|
|
|
|
|
315,837 |
|
|
|
|
|
|
|
|
|
|
|
315,837 |
|
Prepaid and other current assets |
|
|
1,435,146 |
|
|
|
21,580 |
|
|
|
1,456,726 |
|
|
|
(21,580 |
) |
|
|
3 |
|
|
|
1,435,146 |
|
Property, plant and equipment, net |
|
|
2,321,008 |
|
|
|
124,846 |
|
|
|
2,445,854 |
|
|
|
(124,846 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
2 |
|
|
|
2,351,008 |
|
Notes receivables |
|
|
334,986 |
|
|
|
32,976 |
|
|
|
367,962 |
|
|
|
(32,976 |
) |
|
|
3 |
|
|
|
334,986 |
|
Other assets |
|
|
80,393 |
|
|
|
14,766 |
|
|
|
95,159 |
|
|
|
(14,766 |
) |
|
|
3 |
|
|
|
80,393 |
|
Non-compete, net |
|
|
|
|
|
|
996,227 |
|
|
|
996,227 |
|
|
|
(996,227 |
) |
|
|
3 |
|
|
|
|
|
Software costs, net |
|
|
3,938,402 |
|
|
|
|
|
|
|
3,938,402 |
|
|
|
|
|
|
|
|
|
|
|
3,938,402 |
|
Customer lists, net |
|
|
10,262,250 |
|
|
|
|
|
|
|
10,262,250 |
|
|
|
262,000 |
|
|
|
2 |
|
|
|
10,524,250 |
|
Goodwill |
|
|
43,599,379 |
|
|
|
2,769,534 |
|
|
|
46,368,913 |
|
|
|
(2,769,534 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,521,932 |
|
|
|
2 |
|
|
|
49,121,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
78,116,029 |
|
|
$ |
4,772,416 |
|
|
$ |
82,888,445 |
|
|
$ |
4,965,016 |
|
|
|
|
|
|
$ |
87,853,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,630,304 |
|
|
$ |
13,649 |
|
|
$ |
4,643,953 |
|
|
$ |
(13,649 |
) |
|
|
3 |
|
|
$ |
4,630,304 |
|
Accrued expenses and other liabilities |
|
|
2,274,312 |
|
|
|
343,306 |
|
|
|
2,617,618 |
|
|
|
(298,306 |
) |
|
|
3 |
|
|
|
2,319,312 |
|
Deferred tax liability |
|
|
188,400 |
|
|
|
|
|
|
|
188,400 |
|
|
|
(122,638 |
) |
|
|
3 |
|
|
|
65,762 |
|
Unearned revenues |
|
|
181,216 |
|
|
|
|
|
|
|
181,216 |
|
|
|
|
|
|
|
|
|
|
|
181,216 |
|
Customer deposits |
|
|
1,490,677 |
|
|
|
257,427 |
|
|
|
1,748,104 |
|
|
|
(257,427 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279,917 |
|
|
|
2 |
|
|
|
1,770,594 |
|
Bank line of credit |
|
|
12,000,000 |
|
|
|
|
|
|
|
12,000,000 |
|
|
|
|
|
|
|
|
|
|
|
12,000,000 |
|
Due to shareholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and capital leases |
|
|
5,426,467 |
|
|
|
6,292,270 |
|
|
|
11,718,737 |
|
|
|
(6,292,270 |
) |
|
|
3 |
|
|
|
5,426,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
26,191,376 |
|
|
|
6,906,652 |
|
|
|
33,098,028 |
|
|
|
(6,704,373 |
) |
|
|
|
|
|
|
26,393,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
1,018,638 |
|
|
|
|
|
|
|
1,018,638 |
|
|
|
200,000 |
|
|
|
1 |
|
|
|
1,218,638 |
|
Additional Paid in Capital |
|
|
37,759,670 |
|
|
|
|
|
|
|
37,759,670 |
|
|
|
9,257,515 |
|
|
|
1 |
|
|
|
47,017,185 |
|
Members Capital |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
(500,000 |
) |
|
|
3 |
|
|
|
|
|
Retained earnings (deficit) |
|
|
13,170,774 |
|
|
|
(2,634,236 |
) |
|
|
10,536,538 |
|
|
|
2,711,874 |
|
|
|
3 |
|
|
|
13,248,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
(24,429 |
) |
|
|
|
|
|
|
(24,429 |
) |
|
|
|
|
|
|
|
|
|
|
(24,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
51,924,653 |
|
|
|
(2,134,236 |
) |
|
|
49,790,417 |
|
|
|
11,669,389 |
|
|
|
|
|
|
|
61,459,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
78,116,029 |
|
|
$ |
4,772,416 |
|
|
$ |
82,888,445 |
|
|
$ |
4,965,016 |
|
|
|
|
|
|
$ |
87,853,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
-2-
SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
COMBINING STATEMENTS OF OPERATIONS
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunair and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 3 |
|
|
|
|
|
|
Subsidiaries |
|
|
Spa Creek |
|
|
Combined |
|
|
Pro-forma |
|
|
Pro-forma |
|
|
Pro-forma |
|
|
|
Historical |
|
|
Services, LLC |
|
|
Total |
|
|
Adjustments |
|
|
Adjustments |
|
|
Combined |
|
Revenues |
|
$ |
31,451,770 |
|
|
$ |
3,583,615 |
|
|
$ |
35,035,385 |
|
|
$ |
|
|
|
|
|
|
|
$ |
35,035,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
21,244,761 |
|
|
|
413,053 |
|
|
|
21,657,814 |
|
|
|
|
|
|
|
|
|
|
|
21,657,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
10,207,009 |
|
|
|
3,170,562 |
|
|
|
13,377,571 |
|
|
|
|
|
|
|
|
|
|
|
13,377,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
10,020,901 |
|
|
|
3,658,012 |
|
|
|
13,678,913 |
|
|
|
45,000 |
|
|
|
3 |
|
|
|
13,723,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
186,108 |
|
|
|
(487,450 |
) |
|
|
(301,342 |
) |
|
|
(45,000 |
) |
|
|
|
|
|
|
(346,342 |
) |
Other income (expenses) |
|
|
(6,109 |
) |
|
|
20,998 |
|
|
|
14,889 |
|
|
|
|
|
|
|
|
|
|
|
14,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
179,999 |
|
|
|
(466,452 |
) |
|
|
(286,453 |
) |
|
|
(45,000 |
) |
|
|
|
|
|
|
(331,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
|
415,558 |
|
|
|
|
|
|
|
415,558 |
|
|
|
122,638 |
|
|
|
3 |
|
|
|
538,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
595,557 |
|
|
$ |
(466,452 |
) |
|
$ |
129,105 |
|
|
$ |
77,638 |
|
|
|
|
|
|
$ |
206,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average of pro-forma shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7,556,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,556,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
11,478,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,478,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
-3-
SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined financial information has been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain
information and certain footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations; however, management believes that the
disclosures are adequate to make the information presented not misleading.
NOTE 2 ASSET PURCHASE AGREEMENT
On December 16, 2005, Middleton Pest Control, Inc. (Middleton) entered into a definitive
Asset Purchase Agreement by and among Middleton and Spa Creek Services, LLC, D/B/A Pest
Environmental, a Delaware limited liability company (Spa Creek), to acquire substantially all the
assets and assume certain liabilities of Spa Creek for $5,500,000. In
addition, Sunair Services Corporation (Sunair)
incurred $233,419 of transaction costs consisting of legal, accounting and brokerage fees.
The following table sets forth the preliminary allocation of the purchase price of Spa Creeks
tangible and intangible assets acquired and liabilities assumed as of December 16, 2005:
|
|
|
|
|
Goodwill |
|
$ |
5,521,932 |
|
Customer list |
|
|
262,000 |
|
Accounts receivable |
|
|
132,929 |
|
Inventory |
|
|
66,475 |
|
Property, plant and equipment |
|
|
30,000 |
|
Customer deposits |
|
|
(279,917 |
) |
|
|
|
|
Total |
|
$ |
5,733,419 |
|
|
|
|
|
NOTE 3 PRO FORMA ADJUSTMENTS
|
1. |
|
To reflect the issuance and sale of 2,000,003 shares of common stock in the first
tranche of a private placement for a total of $10,500,016 less $1,042,501 in closing costs
to complete the acquisition of the assets of Spa Creek. |
-4-
SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
NOTE 3 PRO FORMA ADJUSTMENTS (CONTINUED)
|
2. |
|
To reflect the allocation of the purchase price of $5,733,419 to specific assets
acquired and adjustments from book value to market value of assets acquired. The excess of
the purchase price over the book value was allocated first to customer lists at the fair
market value on the date of the purchase. The remainder was allocated to goodwill. |
|
|
3. |
|
Reflects elimination of assets and liabilities included in historical financials of
Spa Creek not purchased by Middleton. Also to record 3
month consulting agreement to prior owners at $15,000 per month and adjust for the tax
benefit of the pro forma loss of Spa Creek. |
-5-