e8vkza

0000950123-11-031591.txt : 20110331 0000950123-11-031591.hdr.sgml : 20110331 20110331170555 ACCESSION NUMBER: 0000950123-11-031591 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20110301 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20110331 DATE AS OF CHANGE: 20110331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Swisher Hygiene Inc. CENTRAL INDEX KEY: 0001504747 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TO DWELLINGS & OTHER BUILDINGS [7340] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-35067 FILM NUMBER: 11727341 BUSINESS ADDRESS: STREET 1: 4725 PIEDMONT ROW DRIVE STREET 2: SUITE 400 CITY: CHARLOTTE STATE: NC ZIP: 28210 BUSINESS PHONE: 704 364 7707 MAIL ADDRESS: STREET 1: 4725 PIEDMONT ROW DRIVE STREET 2: SUITE 400 CITY: CHARLOTTE STATE: NC ZIP: 28210 8-K/A 1 g26653e8vkza.htm FORM 8-K/A e8vkza

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 8-K/A

(Amendment No. 1)

CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of the Report (Date of earliest event reported) March 1, 2011

SWISHER HYGIENE INC.

(Exact name of registrant as specified in its charter)


Delaware	001-35067	27-3819646

(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(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)

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 (see General Instruction A.2. ):


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))

Explanatory Note

As reported in a Current Report on Form 8-K filed with the Securities Exchange Commission (“SEC”) by Swisher Hygiene Inc. (“Swisher”) on March 4, 2011 (the “Initial Form 8-K”), Swisher completed its acquisition of Choice Environmental Services, Inc. (“Choice”) on March 1, 2011 pursuant to an Agreement and Plan of Merger, as amended (the “Agreement”), by and among Swisher, Swsh Merger Sub, Inc., a Florida corporation and wholly-owned subsidiary of Swisher (“Merger Sub”), Choice, and other parties, as set forth in the Agreement. Under the terms of the Agreement, Merger Sub merged with and into Choice, and Choice will continue as the surviving entity and a wholly-owned subsidiary of Swisher. This Amendment No. 1 to the Initial Form 8-K amends and restates in its entirety Item 9.01, which is being filed in order to provide the financial statements required by Item 9.01(a) and the pro forma financial information required by Item 9.01(b) that were omitted as permitted pursuant to SEC rules from the Initial Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(a)		Financial Statements of Business Acquired

		The audited consolidated financial statements of Choice Environmental Services, Inc. for the year ended September 30, 2010 and 2009 are attached hereto as Exhibit 99.1 and incorporated herein by reference. The consolidated financial statements of Choice Environmental Services, Inc. for the three months ended December 31, 2010 and 2009 are attached hereto as Exhibit 99.2 and incorporated herein by reference.

(b)		Pro Forma Financial Information

		The unaudited pro forma financial information for Swisher Hygiene Inc., after giving effect to the acquisition of Choice Environmental Services, Inc. and adjustments described in such pro forma information, are attached hereto as Exhibit 99.3 and incorporated herein by reference.

(d)		Exhibits

		The following exhibits are attached herewithin:


Exhibit
Number		Description

	23.1	Consent of Kreischer Miller, independent certified public accounting firm.

	99.1	Choice Environmental Services, Inc. audited consolidated financial statements, including the report of Kreischer Miller, independent certified public accounting firm, for the year ended September 30, 2010 and 2009.

	99.2	Choice Environmental Services, Inc. consolidated financial statements, including the report of Kreischer Miller, independent certified public accounting firm, for the three months ended December 31, 2010 and 2009.

	99.3	Unaudited pro forma information for Swisher Hygiene Inc., after giving effect to the acquisition of Choice Environmental Services, Inc. and adjustments described in such pro forma information.

SIGNATURE

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)
	By:	/s/ Steven R. Berrard
		Steven R. Berrard
		President and Chief Executive Officer

Dated: March 31, 2011

EX-23.1 2 g26653exv23w1.htm EX-23.1 exv23w1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference of our report dated February 11, 2011, relating to our audits of the consolidated financial statements of Choice Environmental Services, Inc. and Subsidiaries and Affiliate as of and for the years ended September 30, 2010 and 2009, and our report, dated March 14, 2011, on our reviews of the consolidated financial statements of Choice Environmental Services, Inc. and Subsidiaries and Affiliate for the three months ended December 31, 2010 and 2009, which are included in the Current Report on Form 8-K/A filed by Swisher Hygiene, Inc. on March 31, 2011, in the registration statement on Form S-8 of Swisher Hygiene, Inc., Registration No. 333-172233.



/s/ Kreischer Miller

Horsham, Pennsylvania
March 31, 2011

EX-99.1 3 g26653exv99w1.htm EX-99.1 exv99w1

EXHIBIT 99.1

CHOICE ENVIRONMENTAL SERVICES, INC. AND
SUBSIDIARIES AND AFFILIATE

Consolidated Financial Statements and Supplemental Schedules

September 30, 2010 and 2009

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Financial Statements As of September 30, 2010 and 2009


INDEPENDENT AUDITORS’ REPORT			2
FINANCIAL STATEMENTS
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Changes in Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7
SUPPLEMENTAL SCHEDULES
Schedule I — Consolidating Balance Sheet			18
Schedule II — Consolidating Statement of Operations			19

Independent Auditors’ Report

The Stockholders

Choice Environmental Services, Inc.

and Subsidiaries and Affiliate

Ft. Lauderdale, Florida

We have audited the accompanying consolidated balance sheets of Choice Environmental Services, Inc. and Subsidiaries and Affiliate as of September 30, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Choice Environmental Services, Inc. and Subsidiaries and Affiliate as of September 30, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating information included in Schedules I and II is presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual companies. The consolidating information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

/s/ Kreischer Miller

Horsham, Pennsylvania

February 11, 2011

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Balance Sheets
Years Ended September 30, 2010 and 2009


	2010		2009

ASSETS
Current assets:
Cash	$	507,548	$	74,634
Accounts receivable, net		3,708,934		4,091,085
Inventories		239,349		195,901
Prepaid expenses		458,014		342,452
Deferred tax asset		181,222		203,808

Total current assets		5,095,067		4,907,880
Property and equipment, net		28,587,565		17,132,628
Goodwill		13,957,814		13,475,314
Intangible assets, net		3,346,920		3,756,552
Deferred financing costs, net		1,570,576		—
Deposits		140,983		188,721

	$	52,698,925	$	39,461,095


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	567,443	$	12,454,650
Current portion of long-term debt		3,916,441		2,550,574
Current portion of notes payable to related parties		75,261		1,266,791
Current portion of capital lease obligations		25,053		23,156
Accounts payable and accrued expenses		5,830,930		2,945,831

Total current liabilities		10,415,128		19,241,002

Long-term liabilities:
Long-term debt, net of current portion		33,259,456		13,738,920
Notes payable to related parties, net of current portion		1,247,352		122,135
Capital lease obligations, net of current portion		15,543		40,598
Deferred tax liability		1,065,720		511,722

		35,588,071		14,413,375

Stockholders’ equity		6,695,726		5,806,718

	$	52,698,925	$	39,461,095

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Operations
Years Ended September 30, 2010 and 2009


	2010			2009

Revenue	$	44,893,686		$	37,533,524
Cost of sales		33,657,272			27,549,105

Gross profit		11,236,414			9,984,419
Operating expenses		7,099,813			5,958,991

Income from operations		4,136,601			4,025,428
Other income (expenses):
Gain (loss) from the sale of property and equipment		(330,173	)		34,568
Interest and other, net		(1,913,213	)		(1,626,319	)

Income before provision for income taxes		1,893,215			2,433,677
Provision for income taxes		(576,584	)		(307,914	)

Net income		1,316,631			2,125,763
Net loss attributable to noncontrolling interest in VIE		2,803			—

Net income attributable to Choice Environmental Services, Inc. and Subsidiaries	$	1,319,434		$	2,125,763

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Changes in Stockholders’ Equity
Years Ended September 30, 2010 and 2009


				Series A		Series B		Additional
	Common			Preferred		Preferred		Paid-In			Retained			Noncontrolling
	Stock			Stock		Stock		Capital			Earnings			Interest in VIE			Total

Balance, September 30, 2008	$	2,092		$	1	$	2,191	$	5,383,378		$	(1,112,607	)	$	—		$	4,275,055
Net income		—			—		—		—			2,125,763			—			2,125,763
Distributions		—			—		—		—			(594,100	)		—			(594,100	)

Balance, September 30, 2009		2,092			1		2,191		5,383,378			419,056			—			5,806,718
Reverse stock split and repurchase of fractional shares		(1,192	)		—		—		(221,799	)		—			—			(222,991	)
Cancellation of outstanding warrants (Note 10)		—			—		—		(272,742	)		—			—			(272,742	)
Issuance of warrants (Note 10)		—			—		—		287,310			—			—			287,310
Net income (loss)		—			—		—		—			1,319,434			(2,803	)		1,316,631
Distributions		—			—		—		—			(219,200	)		—			(219,200	)

Balance, September 30, 2010	$	900		$	1	$	2,191	$	5,176,147		$	1,519,290		$	(2,803	)	$	6,695,726

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Cash Flows
Years Ended September 30, 2010 and 2009


	2010			2009

Cash flows from operating activities:
Net income	$	1,316,631		$	2,125,763
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		3,805,103			3,277,320
Allowance for doubtful accounts		(57,913	)		(16,237	)
(Gain) loss on sale of property and equipment		330,173			(34,568	)
Amortization of debt discount		39,735			39,735
Deferred taxes		576,584			307,914
(Increase) decrease in:
Accounts receivable		440,064			(218,345	)
Inventories		(43,448	)		(127,676	)
Prepaid expenses		(115,562	)		(127,173	)
Deposits		47,738			(67,326	)
Increase in:
Accounts payable and accrued expenses		2,885,099			663,870

Net cash provided by operating activities		9,224,204			5,823,277

Cash flows from investing activities:
Purchases of property and equipment		(14,640,923	)		(3,281,924	)
Acquisition of business		(662,500	)		(1,092,300	)
Payments for non-compete agreements		(379,608	)		—
Proceeds from sale of assets		46,570			56,235

Net cash used in investing activities		(15,636,461	)		(4,317,989	)

Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations		(3,207,980	)		(2,684,384	)
Proceeds from long-term debt		24,046,058			—
Net proceeds from (repayments of) line of credit		(11,887,207	)		1,892,182
Repurchase of fractional shares		(222,991	)		—
Deferred financing costs		(1,597,196	)		—
Repayments of notes payable to related parties		(66,313	)		(58,849	)
Distributions		(219,200	)		(594,100	)

Net cash provided by (used in) financing activities		6,845,171			(1,445,151	)

Net increase in cash		432,914			60,137
Cash, beginning of year		74,634			14,497

Cash, end of year	$	507,548		$	74,634

Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	1,786,805		$	1,530,515

Supplemental schedules of noncash investing and financing activities:
Purchase of property and equipment, intangibles, and goodwill through the issuance of debt and common stock	$	—		$	1,590,000

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements
September 30, 2010 and 2009


(1)	Nature of Business

Choice Environmental Services, Inc. and Subsidiaries (the Company) is a solid waste services company that provides collection, disposal and recycling services in the state of Florida.


(2)	Principles of Consolidation

The consolidated financial statements include the accounts of Choice Environmental Services, Inc. (Choice) and its wholly-owned subsidiaries, Choice Environmental Services of Miami, Inc. (Miami), Choice Environmental Services of Broward, Inc. (Broward), Choice Recycling Services of Broward, Inc. (Broward Recycling), Choice Environmental Services of Miami-Dade, Inc. (Miami-Dade), Choice Environmental Services of Collier, Inc. (Immokalee), Choice Environmental Services of Highlands County (Highlands), and Choice Environmental Services of Lee County (Lee).

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation, provides guidance for the financial accounting and reporting of interests in certain variable interest entities. In accordance with FASB ASC 810, the Company must consolidate an entity that receives support from the Company and does not have sufficient financial resources to support its own activities. The Company consolidates Choice Realty Holdings, LLC (Choice Realty or Affiliate), a related party through common ownership, which purchased commercial real estate from the Company in April 2010 and subsequently began leasing the property back to the Company. Management believes there is no exposure to loss as a result of the Company’s involvement with Choice Realty.

In addition, Choice has an 80% ownership interest in Choice Recycling Services of Miami, Inc. (Recycling). The noncontrolling interest has not been recorded on the accompanying financial statements because the minority stockholder contributed no capital and the noncontrolling interest is not significant to the consolidated financial statements, as of September 30, 2010 and 2009.

All significant intercompany transactions and balances have been eliminated in consolidation.


(3)	Acquisitions

In April 2010, the Company entered into an agreement with Waste Services of Florida (Waste Services) to acquire certain assets of Waste Services. The aggregate purchase price that was capitalized as part of the cost of acquisitions was $662,500. The transaction was accounted for using the purchase method of accounting and the excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The fair value of assets acquired from Waste Services is as follows:


Property and equipment	$	90,000
Intangible assets		90,000

		180,000
Excess of cost over fair value		482,500

Cash paid	$	662,500


(4)	Summary of Significant Accounting Policies

Revenue Recognition

The Company recognizes collection, recycling and disposal revenues as the services are provided.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Accounts Receivable

Accounts receivable arise in the normal course of business and are recorded when services are provided to customers. Accounts are charged to the allowance for doubtful accounts as they are deemed uncollectible based on a periodic review of the accounts. The Company performs ongoing credit evaluations of its customers and certain additional collection proceedings but generally does not require collateral. The allowance for doubtful accounts is estimated based on the historical bad debt expense and a review of the accounts receivable at year end. The allowance for doubtful accounts is $464,673 and $522,586 at September 30, 2010 and 2009, respectively.

Inventories

Inventories are stated at the lower of cost, using the first-in, first-out method, or market. Inventories primarily consist of finished goods, primarily recycled paper.

Property and Equipment

Property and equipment are recorded at cost. Major renewals and betterments are capitalized; maintenance and minor repairs and replacements that do not improve or extend the lives of the respective assets are expensed currently. Depreciation is recorded using straight line method over the estimated useful lives of the assets, ranging from 2 to 40 years. When properties are retired or otherwise disposed of, the assets and accumulated depreciation accounts are adjusted accordingly and the gain or loss, if any, arising from disposition, is credited or charged to earnings.

Goodwill

The Company’s goodwill was recorded as a result of the Company’s business acquisitions. The Company has recorded these business acquisitions using the purchase method of accounting. The Company tests its recorded goodwill for impairment on an annual basis, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger an interim impairment test include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company’s overall business, significant negative industry or economic trends and a sustained period where market capitalization, plus an appropriate control premium, is less than stockholders’ equity. During 2010 and 2009 the Company determined that no impairment of goodwill existed because the estimated fair value of each reporting unit exceeded its carrying amount. Future impairment reviews may require write-downs in the Company’s goodwill and could have a material adverse impact on the Company’s operating results for the periods in which such write-downs occur.

Intangible Assets

The Company has non-compete agreements and customer routes that were acquired in acquisitions. Non-compete agreements are amortized on the straight-line basis over their terms of 5 years. Customer routes are amortized on the straight-line basis over their estimated useful lives of 7 years. Amortization expense for the years ended September 30, 2010 and 2009 was $879,240 and $748,531, respectively.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Intangible assets comprised the following at September 30:


	2010			2009

Non-compete agreements	$	1,484,705		$	1,489,106
Customer routes		4,015,000			3,925,000

		5,499,705			5,414,106
Accumulated amortization		(2,152,785	)		(1,657,554	)

	$	3,346,920		$	3,756,552

The estimated amortization for the subsequent five fiscal years is as follows:


Year Ending
September 30,	Amount

2011	$	912,826
2012	$	858,382
2013	$	701,159
2014	$	615,326
2015	$	195,341

Fair Value Measurements

FASB ASC 820, Fair Value Measurements and Disclosures, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Certain assets and liabilities are measured at fair value on a nonrecurring basis. The amounts below represent only balances measured at fair value during the year presented and still held as of the reporting date:


	September 30, 2010
Description	Total		Level 1		Level 2		Level 3

Acquisition of business:
Property and equipment	$	90,000	$	—	$	—	$	90,000
Intangible assets		90,000		—		—		90,000
Excess of cost over fair value		482,500		—		—		482,500

	$	662,500	$	—	$	—	$	662,500

Stock warrant	$	287,310	$	—	$	—	$	287,310

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)


	September 30, 2009
Description	Total		Level 1		Level 2		Level 3

Acquisition of business:
Property and equipment	$	733,238	$	—	$	—	$	733,238
Intangible assets		1,050,000		—		—		1,050,000
Excess of cost over fair value		1,632,300		—		—		1,632,300

	$	3,415,538	$	—	$	—	$	3,415,538

Deferred Financing Costs

Deferred financing costs consist of costs incurred with unrelated third parties to obtain debt financing and are amortized over the contractual life of the note in such a way as to result in a constant rate of interest when applied to the outstanding note. Amortization expense on deferred financing costs was $26,620 for the year ended September 30, 2010. The estimated amortization for the subsequent five years is approximately $319,000.

Advertising

Advertising costs are expensed as incurred. Advertising expense for the years ended September 30, 2010 and 2009 was $124,293 and $136,065, respectively.

Income Taxes

Deferred income taxes are recorded to include the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts.

FASB ASC 740, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. FASB ASC 740 prescribes a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken. In addition, FASB ASC 740 provides guidance on derecognition, classification, disclosure, and transition. The Company adopted the provisions of FASB ASC 740 on November 1, 2008, and the adoption of FASB ASC 740 did not have a material impact on the Company’s financial statements.

The Company files a federal income tax return and a state return in Florida. With few exceptions, the Company is no longer subject to federal or state income tax examinations by tax authorities for tax years before 2006. It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based on the Company’s assessment of many factors, including past experience and judgments about future events, the Company has concluded that there are no material uncertain tax positions and the Company does not currently anticipate significant changes in uncertain tax positions over the next 12 months.

Concentrations of Risk

The Company places its cash with financial institutions and, at times, such balances may be in excess of insurance limits provided by the Federal Deposit Insurance Corporation. Management regularly monitors the financial institutions, along with its balance of cash, and attempts to keep this potential risk to a minimum.

Use of Estimates

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the valuation of goodwill and intangible assets and the estimate of the allowance for doubtful accounts. Actual results could differ from those estimates.

Subsequent Events

The Company has performed an evaluation of subsequent events through February 11, 2011, which is the date the financial statements were available to be issued.

(5) Property and Equipment

Property and equipment comprise the following at September 30:


							Estimated
	2010			2009			Useful Lives

Choice Environmental Services, Inc. and Subsidiaries:
Land	$	—		$	1,128,119		N/A
Building		—			1,788,867		40 years
Machinery and equipment		9,301,812			8,471,009		2 - 10 years
Vehicles		23,708,300			12,506,836		3 - 10 years
Leasehold improvements		516,179			654,395		3 - 10 years
Office equipment		104,174			75,726		3 - 5 years
Choice Realty:
Land		1,128,119			—		N/A
Building		1,788,867			—		40 years

		36,547,451			24,624,952
Accumulated depreciation		(7,959,886	)		(7,492,324	)

	$	28,587,565		$	17,132,628

Depreciation expense for the years ended September 30, 2010 and 2009 was $2,899,243 and $2,528,789, respectively.

In April 2010, the Company sold land and a building to Choice Realty at a contract price of $1,890,000. The effects of this transaction have been eliminated in consolidation.


(6)	Revolving Credit and Term Loans

The Company had a credit facility of $29,000,000, comprised of a $13,000,000 Revolving Credit Note (Revolver), a $3,500,000 Equipment Loan, a $10,000,000 term loan, and a $2,500,000 term loan. The agreement is secured by substantially all the Company’s assets, a stock pledge of the Company’s shares in each of its subsidiaries, stock pledge agreements from certain stockholders, and an assignment of a life insurance policy. The agreement is subject to a prepayment premium and certain financial ratios and customary covenants as set forth in the agreement.

In October 2009, the Company refinanced the Equipment Loan and the $10,000,000 term loan to increase the credit facility to a $14,000,000 term loan. In August 2010, the Company refinanced this term loan into a $16,500,000 term loan.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

As of September 30, 2010, borrowings under the Revolver are $567,443. Under the agreement, the Revolver is subject to an annual renewal on October 1. Borrowings bear interest at the Eurodollar Rate or the Prime Rate plus a variable spread ranging from 200 to 300 basis points, depending upon the Company’s ratio of Total Debt to EBITDA (4.26% at September 30, 2010).

The remaining borrowings outstanding under the agreement are discussed in Note 7.


(7)	Long-Term Debt

Long-term debt consists of the following at September 30:


	2010			2009

Choice Environmental Services, Inc. and Subsidiaries and Affiliate:

Notes payable — finance companies, collateralized by specific equipment, payable in monthly installments aggregating $702, including interest, expiring in August 2013. These notes bear interest at 9.69%.	$	21,163		$	34,524

Notes payable — banks, collateralized by specific equipment, payable in monthly installments aggregating $31,971, including interest, expiring at various dates through July 2013. These notes bear interest at various rates up to 6.75%.		704,751			1,030,140

Notes payable — to companies as part of financing of acquisitions. These notes are payable to the sellers in monthly and yearly installments of $39,146 and $110,000 respectively, including interest, expiring at various dates through August 2017. These notes bear interest at various rates up to 12.00%.		1,612,657			2,183,840

Notes payable — Comerica Bank per the agreement discussed in Note 6. These notes are payable in monthly installments aggregating $273,176, including interest, expiring in August 2013. The note is recorded net of the unamortized discount in 2009. These notes bear interest at various rates up to 6.75%.		18,577,469			13,040,990

Note payable — Penfund per the agreement discussed in Note 8. The subordinated note is recorded net of the unamortized discount.		14,788,393			—

Choice Realty:

Note payable — Comerica Bank. The mortgage is payable in monthly installments of $10,832, including interest, matures in April 2015 with a balloon payment of remaining principal and accrued interest. The mortgage bears interest at 6% and is secured by commercial real estate and personal guarantees of the stockholders.		1,471,464			—

		37,175,897			16,289,494
Current maturities		(3,916,441	)		(2,550,574	)

	$	33,259,456		$	13,738,920

The long-term debt is reflected net of unamortized discounts of $287,310 and $312,476 at September 30, 2010 and 2009, respectively.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Future maturities of long-term debt in each of the next five years are as follows:


Year Ending
September 30,	Amount

2011	$	3,916,441
2012		3,770,001
2013		5,484,961
2014		3,252,814
2015		19,564,580
Thereafter		1,474,410

	$	37,463,207

Interest expense on all indebtedness was $1,820,511 and $1,468,041 for the years ended September 30, 2010 and 2009, respectively.


(8)	Subordinated Credit

In August 2010, the Company entered into a subordinated credit agreement with Penfund Capital Fund III Limited Partnership (Penfund). The agreement established a non- revolving term loan facility in a maximum initial principal amount of $15,000,000. The agreement is secured by substantially all the Company’s assets, a stock pledge of the Company’s shares in each of its subsidiaries, stock pledge agreements from certain stockholders, and an assignment of a life insurance policy. The agreement is subject to a prepayment premium based on an established percentage of the outstanding principal and certain affirmative and negative covenants. Interest accrues and is payable monthly at a rate of 16% per annum. The Company may elect to defer all or any portion of the interest in excess of 12%. At September 30, 2010, the Company has deferred $75,702 of interest. The outstanding principal, plus accrued interest is due in August 2015.


(9)	Related Party Transactions

Solid Waste Resources, Inc.

The majority stockholder of the Company is the sole stockholder of Solid Waste Resources, Inc. The Company has an unsecured note payable with an outstanding balance of $1,200,000 at September 30, 2010 and 2009. The note bears interest at 8.33%. The entire principal balance is due in March 2016. The note is subordinated to the Penfund debt (Note 8) and the credit facility in Note 6.

Due to Stockholders

During the fiscal year ended September 30, 2008, the Company borrowed $300,000 from a stockholder. The note is payable in monthly installments of $7,118, including interest, and matures in May 2012. The note bears interest at 12%. The outstanding balance due the stockholder is $122,613 and $188,926 at September 30 2010 and 2009, respectively.

Operating Lease

The Company leases office space from a related party. Rent expense was $150,000 for the year ended September 30, 2010 and 2009.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

(10) Stockholders’ Equity

At September 30, 2010, the Company’s capital stock consists of:

Class A common stock, $300 par value; 50,000,000 shares authorized; 3 shares issued and outstanding.

Preferred Series A stock, $.001 par value; 1,000 shares authorized, issued and outstanding.

Preferred Series B stock, $.001 par value; 3,100,000 shares authorized; 2,191,000 shares issued and outstanding.

At September 30, 2009, the Company’s capital stock consists of:

Class A common stock, $.01 par value; 50,000,000 shares authorized; 2,092,450 shares issued and outstanding.

Preferred Series A stock, $.001 par value; 1,000 shares authorized, issued and outstanding.

Preferred Series B stock, $.001 par value; 3,100,000 shares authorized; 2,191,000 shares issued and outstanding.

Class A Common Stock

In August 2010, the Company executed a 1 for 300,000 reverse stock split on the Class A common stock of the Company. Subsequent to reverse stock split, Class A common shares were repurchased and retired from stockholders with less than one share. The cost of the transaction was approximately $223,000. Subsequent to year end, litigation was commenced and settled by the Company against certain former stockholders in relation to the reverse stock split of the Class A common shares. The Company brought this litigation in order to provide those stockholders with certain statutorily-mandated appraisal rights inuring to dissenting shareholders.

Series A Preferred Stock

The designated shares of Series A preferred stock are not convertible or exchangeable, and the holder is entitled to dividends, on a pro rata, per share basis equivalent to dividends on the Company’s common stock, if declared and paid. Dividends are not cumulative. The Company cannot redeem Series A preferred stock without the prior written consent of the holder.

Series B Preferred Stock

The designated shares of Series B preferred stock are convertible into Class A common stock, at the option of the holders, at a ratio of 1 share of Series B for 1 share of Class A common stock. Dividends are cumulative at the rate of 10% per annum. Accumulated dividends do not bear interest. At September 30, 2009, $219,200 of dividends were in arrears, which were paid during the fiscal year September 30, 2010.

Voting Rights

The holders of the Class A common stock, Series A preferred stock and Series B preferred stock are entitled to one vote for each share held. Series A preferred stockholders have voting rights to elect a numerical majority of the Board of Directors. Additional voting rights include the ability to approve and disapprove any amendments to corporate by-laws, articles of incorporation or creation of additional classes of stock. Series B preferred stock shares have the same voting rights as the Class A common stock of the Company.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Warrants

In connection with the issuance of the Penfund debt on August 25, 2010, the Company issued a warrant to purchase shares of Class A common shares which represent 5% of the fully diluted shares outstanding of the Company. The Company has valued the warrant at $287,310 using a Black-Scholes pricing model, adjusted for the estimated impact on the value of the restrictions related to the warrant and pricing volatility. The warrant is recorded as a discount on long-term debt obligations and additional paid in capital. The discount is being amortized to interest expense over the term of the warrant.

The following table summarizes information with respect to warrants outstanding and exercisable at September 30, 2009:


	Warrants		Expiration
Exercise Price	Outstanding		Date

$0.010		1,472,000		2/19/14
$0.070		21,429		2/19/14
$7.000		2,936		3/30/14
$0.070		500,000		10/15/14
$0.130		25,000		1/1/15
$0.250		1,000,000		6/1/15
$0.250		500,000		10/1/16
$0.250		1,500,000		10/15/17
$0.355		382,370		11/30/17
$1.000		150,000		12/1/17

		5,553,735

The Company originally valued the warrants outstanding as of September 30, 2009 at $397,346 using a Black-Scholes pricing model, adjusted for the estimated impact on the value of the restrictions related to the warrants and pricing volatility. The warrants were recorded as a discount on long term debt obligations and additional paid in capital. The discount was being amortized to interest expense over the term of the warrants. These warrants were terminated in December 2009.


(11)	Income Taxes

The Company and its wholly-owned subsidiaries file consolidated federal and state of Florida income tax returns. Consolidated income tax expense is apportioned to each company based upon its proportionate share of the consolidated net income.

At September 30, 2010 and 2009, the Company has deferred tax assets of approximately $2.0 and $1.9 million, respectively, and deferred tax liabilities of approximately $2.9 and $2.2 million, respectively. The temporary differences are primarily related to net operating loss carryforwards, depreciation, amortization, and the allowance for doubtful accounts. The provision for income tax differs from the amount of income tax determined by applying U.S. federal and state statutory rates to pretax income because of a loss from the sale of a property to a related entity that creates a permanent difference for income tax purposes.

At September 30, 2010, the Company has net operating losses available to offset future income for federal and state tax purposes of approximately $4.7 million. The federal net operating loss carryforwards will begin to expire in 2024, if not utilized.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)


(12)	Commitments and Contingencies

Capital Leases

The Company leases equipment under noncancelable leases, which meet the capital lease criteria as defined by FASB ASC 840-30, Capital Leases. Accordingly, the present value of future minimum lease payments under such leases has been recorded on the accompanying consolidated balance sheets as property and equipment and capital lease obligations.

As of September 30, 2010, the future minimum lease payments are as follows:


Year Ending
September 30,	Amount

2011	$	27,368
2012		15,965

		43,333
Amount representing interest		(2,737	)

Present value of net minimum lease payments		40,596
Current maturities		(25,053	)

	$	15,543

Assets acquired under capital leases are included in property and equipment as follows at September 30:


	2010			2009

Machinery and equipment	$	112,736		$	112,736
Accumulated depreciation		(55,026	)		(38,921	)

	$	57,710		$	73,815

Operating Leases

The Company rents equipment and facilities under operating lease agreements. The leases expire through September 2020. Total rent expense under the operating leases was $1,083,356 and $831,078 for the years ended September 30, 2010 and 2009, respectively. The future minimum lease payments are as follows:


Year Ending
September 30,	Amount

2011	$	1,019,138
2012	$	1,004,888
2013	$	817,068
2014	$	691,375
2015	$	710,427

Environmental Liability

The Company is subject to liability for any environmental damage, including personal injury and property damage that its solid waste and recycling may cause to neighboring property owners, particularly as a result of the contamination of drinking water sources or soil, possibly including damage resulting from conditions existing before the Company acquired the facilities. The Company may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if the

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Company or its predecessors arrange to transport, treat or dispose of those materials. Any substantial liability incurred by the Company arising from environmental damage could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company is not presently aware of any situations that it expects would have a material adverse impact on its results of operations or financial condition.

Litigation

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.

Revenue Adjustments

From time to time, the Company is involved in discrepancies regarding revenue adjustments or chargebacks with its carriers and customers. Although these discrepancies can be material to the Company if not resolved satisfactorily, the Company does not believe that the ultimate resolution of these discrepancies will have a material adverse impact on the Company’s financial position, results of operations or cash flows.


(13)	Subsequent Event

During December 2010, the Company executed a recapitalization of the Company’s capital stock. The Company’s capital stock consists of the following subsequent to the recapitalization:

Class A common stock, no par value; 50,000,000 shares authorized; 1,238,002 shares issued and outstanding. The warrant to purchase the Company’s Class A common stock issued to Penfund by the Company remains outstanding.

Preferred Series A stock, $.001 par value; 228,000 shares authorized, issued and outstanding.

Preferred Series B stock, $.001 par value; 3,100,000 shares authorized; 2,123,000 shares issued and outstanding.

On January 19, 2011, the Company received a letter from Swisher Hygiene, Inc. (Swisher) which expressed an interest in acquiring all of the equity capital interest of the Company. Equity capital interest is defined as all of the Company’s common stock, preferred stock, warrants, options and rights to acquire common stock, preferred stock or any of its other equity capital interests including the warrants and other equity capital interests owned by Penfund or its affiliates. The Company and Swisher are negotiating an Agreement and Plan of Merger.

The Company implemented a 401(k) plan effective January 2011. All full-time employees may become participants in the plan upon obtaining 21 years of age and completing one year of eligible employment. The Company will match 50% of the first 3% of a participant’s compensation.

Schedule I

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Supplementary Information

Consolidating Balance Sheet
Year Ended September 30, 2010


	Choice		Realty			Elimination			Consolidated

ASSETS
Current assets:
Cash	$	503,387	$	4,161		$	—		$	507,548
Accounts receivable, net		3,708,934		—			—			3,708,934
Inventories		239,349		—			—			239,349
Prepaid expenses		458,014		—			—			458,014
Deferred tax asset		181,222		—			—			181,222

Total current assets		5,090,906		4,161			—			5,095,067
Property and equipment, net		25,782,211		1,850,625			954,729			28,587,565
Goodwill		13,957,814		—			—			13,957,814
Intangible assets, net		3,346,920		—			—			3,346,920
Notes receivable		376,049		—			(376,049	)		—
Deferred financing costs, net		1,570,576		—			—			1,570,576
Deposits		140,983		—			—			140,983

	$	50,265,459	$	1,854,786		$	578,680		$	52,698,925


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Line of credit	$	567,443	$	—		$	—		$	567,443
Current portion of long-term debt		3,873,572		42,869			—			3,916,441
Current portion of notes payable to related parties		75,261		—			—			75,261
Current portion of capital lease obligations		25,053		—			—			25,053
Accounts payable and accrued expenses		5,820,854		10,076			—			5,830,930

Total current liabilities		10,362,183		52,945			—			10,415,128

Long-term liabilities:
Long-term debt, net of current portion		31,830,861		1,428,595			—			33,259,456
Notes payable to related parties, net of current portion		1,247,352		376,049			(376,049	)		1,247,352
Capital lease obligations, net of current portion		15,543		—			—			15,543
Deferred tax liability		1,065,720		—			—			1,065,720

		34,159,476		1,804,644			(376,049	)		35,588,071

Stockholders’ equity (deficit)		5,743,800		(2,803	)		954,729			6,695,726

	$	50,265,459	$	1,854,786		$	578,680		$	52,698,925

Schedule II

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Supplementary Information

Consolidating Statement of Operations

Year Ended September 30, 2010


	Choice			Realty			Elimination			Consolidated

Revenue	$	44,893,686		$	74,206		$	(74,206	)	$	44,893,686
Cost of sales		33,657,272			—			—			33,657,272

Gross profit		11,236,414			74,206			(74,206	)		11,236,414
Operating expenses		7,131,111			42,908			(74,206	)		7,099,813

Income from operations		4,105,303			31,298			—			4,136,601
Other income (expenses):
Loss from the sale of property and equipment		(1,284,902	)		—			954,729			(330,173	)
Interest and other, net		(1,879,112	)		(34,101	)		—			(1,913,213	)

Income (loss) before provision for income taxes		941,289			(2,803	)		954,729			1,893,215
Provision for income taxes		(576,584	)		—			—			(576,584	)

Net income (loss)	$	364,705		$	(2,803	)	$	954,729		$	1,316,631

EX-99.2 4 g26653exv99w2.htm EX-99.2 exv99w2

EXHIBIT 99.2

CHOICE ENVIRONMENTAL SERVICES, INC. AND
SUBSIDIARIES AND AFFILIATE

Consolidated Financial Statements and Supplemental Schedules

December 31, 2010 and 2009

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Financial Statements As of December 31, 2010 and December 31, 2009


INDEPENDENT ACCOUNTANTS’ REVIEW REPORT			2
FINANCIAL STATEMENTS
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Changes in Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7
SUPPLEMENTAL SCHEDULES
Schedule I — Consolidating Balance Sheet			17
Schedule II — Consolidating Statement of Operations			18

Independent Accountants’ Review Report

The Stockholders

Choice Environmental Services, Inc.

and Subsidiaries and Affiliate

Ft. Lauderdale, Florida

We have reviewed the accompanying consolidated balance sheets of Choice Environmental Services, Inc. and Subsidiaries and Affiliate as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the three months then ended. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.

Our responsibility is to conduct the reviews in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

Our reviews were made for the purpose of expressing limited assurance that there are no material modifications that should be made to the basic financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The consolidating information included in Schedules I and II is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the inquiry and analytical procedures applied in the reviews of the basic financial statements and we did not become aware of any material modifications that should be made to such information.

/s/ Kreischer Miller

Horsham, Pennsylvania

March 14, 2011

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Consolidated Balance Sheets

December 31, 2010 and 2009

(See Accountants’ Review Report)


	2010		2009

ASSETS
Current assets:
Cash	$	428,264	$	415,422
Accounts receivable, net		6,141,132		4,732,050
Inventories		247,570		302,165
Prepaid expenses		782,772		576,475
Deposits		144,697		270,108
Deferred tax asset		181,222		203,808

Total current assets		7,925,657		6,500,028
Property and equipment, net		28,568,958		20,188,469
Goodwill		13,957,814		13,475,314
Intangible assets, net		3,250,677		3,545,689
Notes receivable, related party		352,159		—
Deferred financing costs, net		1,490,716		190,000

	$	55,545,981	$	43,899,500


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	5,747,726	$	13,582,330
Current portion of long-term debt		3,875,125		16,944,194
Current portion of notes payable to related parties		77,542		68,814
Current portion of capital lease obligations		25,552		23,616
Accounts payable and accrued expenses		4,970,278		3,315,152

Total current liabilities		14,696,223		33,934,106

Long-term liabilities:
Long-term debt, net of current portion		32,568,355		1,559,606
Notes payable to related parties, net of current portion		1,227,219		1,304,268
Capital lease obligations, net of current portion		8,964		34,518
Deferred tax liability		1,065,720		511,722

		34,870,258		3,410,114

Stockholders’ equity		5,979,500		6,555,280

	$	55,545,981	$	43,899,500

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Operations
Three Months Ended December 31, 2010 and 2009
(See Accountants’ Review Report)


	2010		2009

Revenue	$	15,654,862	$	11,227,644
Cost of sales		11,387,460		8,555,081

Gross profit		4,267,402		2,672,563
Operating expenses		2,860,077		1,542,284

Income from operations		1,407,325		1,130,279
Other expenses:
Interest and other, net		930,738		381,717

Net income		476,587		748,562
Net loss attributable to noncontrolling interest in VIE		5,234		—

Net income attributable to Choice Environmental Services, Inc. and Subsidiaries	$	481,821	$	748,562

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended December 31, 2010 and 2009
(See Accountants’ Review Report)


				Series A		Series B			Additional					Noncontrolling
	Common			Preferred		Preferred			Paid-In		Retained			Interest
	Stock			Stock		Stock			Capital		Earnings			in VIE			Total

Balance, September 30, 2009	$	2,092		$	1	$	2,191		$	5,383,378	$	419,056		$	—		$	5,806,718
Net income		—			—		—			—		748,562			—			748,562

Balance, December 31, 2009		2,092			1		2,191			5,383,378		1,167,618			—			6,555,280

Balance, September 30, 2010		900			1		2,191			5,176,147		1,519,290			(2,803	)		6,695,726
Net income		—			—		—			—		481,821			(5,234	)		476,587
Recapitalization of shares		(900	)		227		(68	)		741		—			—			—
Distributions		—			—		—			—		(1,192,813	)		—			(1,192,813	)

Balance, December 31, 2010	$	—		$	228	$	2,123		$	5,176,888	$	808,298		$	(8,037	)	$	5,979,500

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Cash Flows
Three Months Ended December 31, 2010 and 2009
(See Accountants’ Review Report)


	2010			2009

Cash flows from operating activities:
Net income	$	476,587		$	748,562
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization		1,151,779			885,255
Allowance for doubtful accounts		111,502			15,188
Increase in:
Accounts receivable		(2,543,700	)		(656,153	)
Inventories		(8,221	)		(106,264	)
Prepaid expenses		(324,758	)		(234,023	)
Deposits		(3,714	)		(81,387	)
Increase (decrease) in:
Accounts payable and accrued expenses		(860,652	)		369,321

Net cash provided by (used in) operating activities		(2,001,177	)		940,499

Cash flows from investing activities:
Purchases of property and equipment		(807,069	)		(3,726,434	)

Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations		(888,497	)		(14,178,837	)
Proceeds from long-term debt		—			16,383,724
Net proceeds from line of credit		5,180,283			1,127,680
Repayments of notes payable to related parties		(17,852	)		(15,844	)
Payment of deferred financing costs		—			(190,000	)
Issuance of notes receivable, related party		(352,159	)		—
Distributions		(1,192,813	)		—

Net cash provided by financing activities		2,728,962			3,126,723

Net increase (decrease) in cash		(79,284	)		340,788
Cash, beginning of year		507,548			74,634

Cash, end of year	$	428,264		$	415,422

Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	949,588		$	391,503

See accompanying notes to consolidated financial statements.

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(See Accountants’ Review Report)


(1)	Nature of Business

Choice Environmental Services, Inc. and Subsidiaries (the Company) is a solid waste services company that provides collection, disposal and recycling services in the state of Florida.


(2)	Principles of Consolidation

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation, provides guidance for the financial accounting and reporting of interests in certain variable interest entities. In accordance with FASB ASC 810, the Company must consolidate an entity that receives support from the Company and does not have sufficient financial resources to support its own activities. The Company consolidates Choice Realty Holdings, LLC (Choice Realty or Affiliate), a related party through common ownership, which purchased commercial real estate from the Company in April 2010 and subsequently began leasing the property back to the Company. Management believes there is no exposure to loss as a result of the Company’s involvement with Choice Realty.

All significant intercompany transactions and balances have been eliminated in consolidation.


(3)	Summary of Significant Accounting Policies

Revenue Recognition

The Company recognizes collection, recycling and disposal revenues as the services are provided.

Accounts Receivable

Accounts receivable arise in the normal course of business and are recorded when services are provided to customers. Accounts are charged to the allowance for doubtful accounts as they are deemed uncollectible based on a periodic review of the accounts. The Company performs ongoing credit evaluations of its customers and certain additional collection proceedings but generally does not require collateral. The allowance for doubtful accounts is estimated based on the historical bad debt expense and a review of the accounts receivable at year end. The allowance for doubtful accounts is $576,175 and $537,774 at December 31, 2010 and 2009, respectively.

Inventories

Inventories are stated at the lower of cost, using the first-in, first-out method, or market. Inventories primarily consist of finished goods, primarily recycled paper.

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Property and Equipment

Goodwill

Intangible Assets

The Company has non-compete agreements and customer routes that were acquired in acquisitions. Non-compete agreements are amortized on the straight-line basis over their terms of 5 years. Customer routes are amortized on the straight-line basis over their estimated useful lives of 7 years. Amortization expense for the three months ended December 31, 2010 and 2009 was $246,243 and $214,663, respectively.

Intangible assets comprised the following at December 31:


	2010			2009

Non-compete agreements	$	1,634,705		$	1,492,906
Customer routes		4,015,000			3,925,000

		5,649,705			5,417,906
Accumulated amortization		(2,399,028	)		(1,872,217	)

	$	3,250,677		$	3,545,689

The estimated amortization for the subsequent five fiscal years is as follows:


Year Ending
December 31,	Amount

2011	$	899,214
2012	$	878,380
2013	$	804,366
2014	$	562,860
2015	$	77,262

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Fair Value Measurements

Level 1: Quoted market prices in active markets for identical assets or liabilities.


	Level 2:	Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.


	December 31, 2010
Description	Total		Level 1		Level 2		Level 3

Acquisition of business:
Intangible assets	$	150,000	$	—	$	—	$	150,000

Deferred Financing Costs

Deferred financing costs consist of costs incurred with unrelated third parties to obtain debt financing and are amortized over the contractual life of the note in such a way as to result in a constant rate of interest when applied to the outstanding note. Amortization expense on deferred financing costs was $79,860 for the three months ended December 31, 2010. The estimated amortization for the subsequent five years is approximately $319,000 through 2014 and $215,000 in 2015.

Advertising

Advertising costs are expensed as incurred. Advertising expense for the three months ended December 31, 2010 and 2009 was $41,680 and $10,735, respectively.

Income Taxes

Deferred income taxes are recorded to include the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts.

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Based on the Company’s assessment of many factors, including past experience and judgments about future events, the Company has concluded that there are no material uncertain tax positions and the Company does not currently anticipate significant changes in uncertain tax positions over the next 12 months.

Concentrations of Risk

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the valuation of goodwill and intangible assets and the estimate of the allowance for doubtful accounts. Actual results could differ from those estimates.

Subsequent Events

The Company has performed an evaluation of subsequent events through March 14, 2011, which is the date the consolidated financial statements were available to be issued.


(4)	Property and Equipment

Property and equipment comprise the following at December 31:


							Estimated
	2010			2009			Useful Lives

Choice Environmental Services, Inc. and Subsidiaries:
Land	$	—		$	1,128,119			N/A
Building		—			1,788,867			40 years
Machinery and equipment		9,643,331			8,876,668			2 - 10 years
Vehicles		23,909,488			15,820,810			3 - 10 years
Leasehold improvements		776,553			661,195			3 - 10 years
Office equipment		108,162			75,726			3 - 5 years
Choice Realty:
Land		1,128,119			—			N/A
Building		1,788,867			—			40 years

		37,354,520			28,351,385
Accumulated depreciation		(8,785,562	)		(8,162,917	)

	$	28,568,958		$	20,188,468

Depreciation expense for the three months ended December 31, 2010 and 2009 was $825,676 and $670,592, respectively.

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)


(5)	Revolving Credit and Term Loans

The Company had a credit facility of $29,000,000, comprised of a $13,000,000 Revolving Credit Note (Revolver), a $3,500,000 equipment loan, a $10,000,000 term loan, and a $2,500,000 term loan. The agreement is secured by substantially all the Company’s assets, a stock pledge of the Company’s shares in each of its subsidiaries, stock pledge agreements from certain stockholders, and an assignment of a life insurance policy. The agreement is subject to a prepayment premium and certain financial ratios and customary covenants as set forth in the agreement.

In October 2009, the Company refinanced the equipment loan and the $10,000,000 term loan to increase the credit facility to a $14,000,000 term loan. In August 2010, the Company refinanced this term loan into a $16,500,000 term loan.

As of December 31, 2010, borrowings under the Revolver are $5,747,726. Under the agreement, the Revolver is subject to an annual renewal on October 1. Borrowings bear interest at the Eurodollar Rate or the Prime Rate plus a variable spread ranging from 200 to 300 basis points, depending upon the Company’s ratio of Total Debt to EBITDA (4.26% at December 31, 2010).

The remaining borrowings outstanding under the agreement are discussed in Note 6.


(6)	Long-Term Debt

Long-term debt consists of the following at December 31:


	2010		2009

Choice Environmental Services, Inc. and Subsidiaries and Affiliate:
Notes payable — finance companies, collateralized by specific equipment, payable in monthly installments aggregating $702, including interest, expiring in August 2013. These notes bear interest at 9.69%.	$	19,557	$	30,876
Notes payable — banks, collateralized by specific equipment, payable in monthly installments aggregating $31,971, including interest, expiring at various dates through July 2013. These notes bear interest at various rates up to 6.75%.		619,982		950,801
Notes payable — to companies as part of financing of acquisitions. These notes are payable to the sellers in monthly and yearly installments of $29,550 and $110,000 respectively, including interest, expiring at various dates through August 2017. These notes bear interest at various rates up to 12.00%.		1,615,407		2,053,102

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)


	2010			2009

Choice Environmental Services, Inc. and Subsidiaries and Affiliate:
Notes payable — Comerica Bank per the agreement discussed in Note 5. These notes are payable in monthly installments aggregating $273,176, including interest, expiring in August 2013. The notes are recorded net of the unamortized discount in 2009. These notes bear interest at various rates up to 6.75%.		17,797,627			15,469,021
Note payable — Penfund per the agreement discussed in Note 7. The subordinated note is recorded net of the unamortized discount.		14,940,900			—
Choice Realty:
Note payable — Comerica Bank. The mortgage is payable in monthly installments of $10,832, including interest, matures in April 2015 with a balloon payment of remaining principal and accrued interest. The mortgage bears interest at 6% and is secured by commercial real estate and personal guarantees of the stockholders.		1,450,007			—

		36,443,480			18,503,800
Current maturities		(3,875,125	)		(16,944,194	)

	$	32,568,355		$	1,559,606

The long-term debt is reflected net of unamortized discounts of $287,310 and $312,476 at December 31, 2010 and 2009, respectively.

Future maturities of long-term debt in each of the next five years are as follows:


Year Ending December 31,	Amount

2011	$	3,875,125
2012		3,801,834
2013		5,445,090
2014		3,248,503
2015		19,707,063
Thereafter		653,175

	$	36,730,790

Interest expense on all indebtedness was $930,741 and $381,718 for the three months ended December 31, 2010 and 2009, respectively.


(7)	Subordinated Credit

In August 2010, the Company entered into a subordinated credit agreement with Penfund Capital Fund III Limited Partnership (Penfund). The agreement established a non-revolving term loan facility in a maximum initial principal amount of $15,000,000. The agreement is secured by substantially all the Company’s assets, a stock pledge of the Company’s shares in each of its subsidiaries, stock pledge agreements from certain stockholders, and an assignment of a life insurance policy. The credit agreement is subordinated to the credit facility in Note 5. The agreement is subject to a prepayment premium based on an established percentage of the outstanding principal and certain affirmative and negative covenants. Interest accrues and is payable

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

monthly at a rate of 16% per annum. The Company may elect to defer all or any portion of the interest in excess of 12%. The outstanding principal, plus accrued interest is due in August 2015.


(8)	Related Party Transactions

Solid Waste Resources, Inc.

The majority stockholder of the Company is the sole stockholder of Solid Waste Resources, Inc. The Company has an unsecured note payable with an outstanding balance of $1,200,000 at December 31, 2010 and 2009. The note bears interest at 8.33%. The entire principal balance is due in March 2016. The note is subordinated to the Penfund debt (Note 7) and the credit facility in Note 5.

Due to Stockholders

The Company has a note payable to a stockholder that is due in monthly installments of $7,118, including interest, and matures in May 2012. The note bears interest at 12%. The outstanding balance due the stockholder is $104,761 and $173,082 at December 31, 2010 and 2009, respectively.

Operating Lease

The Company leases office space from a related party. Rent expense was $37,500 for the three months ended December 31, 2010 and 2009.


(9)	Stockholders’ Equity

At December 31, 2010, the Company’s capital stock consists of:

Class A common stock, no par value; 50,000,000 shares authorized; 1,238,002 shares issued and outstanding plus the warrant to purchase the Company’s Class A common stock issued to Penfund by the Company.

Preferred Series A stock, $.001 par value; 228,000 shares authorized, issued and outstanding.

Preferred Series B stock, $.001 par value; 3,100,000 shares authorized; 2,123,000 shares issued and outstanding.

At December 31, 2009, the Company’s capital stock consists of:

Class A common stock, $.001 par value; 50,000,000 shares authorized; 2,092,450 shares issued and outstanding.

Preferred Series A stock, $.001 par value; 1,000 shares authorized, issued and outstanding.

Preferred Series B stock, $.001 par value; 3,100,000 shares authorized; 2,191,000 shares issued and outstanding.

Class A Common Stock

In December 31, 2010, the Company executed a 1,000 for 1 stock split of the Class A common stock. In August 2010, the Company executed a 1 for 300,000 reverse stock split on the Class A common stock of the Company. Subsequent to reverse stock split, Class A common shares were repurchased and retired from stockholders with less than one share.

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Series A Preferred Stock

The designated shares of Series A preferred stock are convertible or exchangeable, and the holder is entitled to dividends, on a pro rata, per share basis equivalent to dividends on the Company’s common stock, if declared and paid. Dividends are not cumulative. The Company cannot redeem Series A preferred stock without the prior written consent of the holder. In December 2010, the Company executed a 228 for 1 stock split of the Series A preferred stock and established the shares are convertible or exchangeable at the option of the holders, at a ratio of 1 share of Series A preferred stock for 1 share of Class A common stock.

Series B Preferred Stock

Voting Rights

Warrants

In connection with the issuance of the Penfund debt on August 25, 2010, the Company issued a warrant to purchase shares of Class A common shares which represent 5% of the fully diluted shares outstanding of the Company. The Company valued the warrant at $287,310 using a Black-Scholes pricing model, adjusted for the estimated impact on the value of the restrictions related to the warrant and pricing volatility. The warrant was recorded as a discount on long-term debt obligations and additional paid in capital. The discount is being amortized to interest expense over the term of the warrant.


(10)	Income Taxes

At December 31, 2010 and 2009, the Company has deferred tax assets of approximately $2.0 and $1.9 million, respectively, and deferred tax liabilities of approximately $2.9 and $2.2 million, respectively. The temporary differences are primarily related to net operating loss carryforwards, depreciation, amortization, and the allowance for doubtful accounts. The provision for income tax differs from the amount of income tax determined by applying U.S. federal and state statutory rates to pretax income because of a loss from the sale of a property to a related entity that creates a permanent difference for income tax purposes.

At December 31, 2010, the Company has net operating losses available to offset future income for federal and state tax purposes of approximately $4.7 million. The federal net operating loss carryforwards will begin to expire in 2024, if not utilized.

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)


(11)	Commitments and Contingencies

Capital Leases

As of December 31, 2010, the future minimum lease payments are as follows:


Year Ending
December 31,	Amount

2011	$	25,552
2012		8,984

		34,536
Current maturities		(25,552	)

	$	8,984

Assets acquired under capital leases are included in property and equipment as follows at December 31:


	2010			2009

Machinery and equipment	$	112,736		$	112,736
Accumulated depreciation		(59,052	)		(42,947	)

	$	53,684		$	69,789

Operating Leases

The Company rents equipment and facilities under operating lease agreements. The leases expire through September 2020. Total rent expense under the operating leases was $277,351 and $196,602 for the three months ended December 31, 2010 and 2009, respectively. The future minimum lease payments are as follows:


Year Ending
December 31,	Amount

2011	$	1,091,036
2012	$	894,804
2013	$	749,480
2014	$	662,204
2015	$	699,110
		.

Environmental Liability

CHOICE ENVIRONMENTAL SERVICES, INC.

AND SUBSIDIARIES AND AFFILIATE

Notes to Consolidated Financial Statements — (Continued)

Company’s business, financial condition and results of operations. The Company is not presently aware of any situations that it expects would have a material adverse impact on its results of operations or financial condition.

Litigation

Revenue Adjustments


(12)	Subsequent Event

On February 14, 2011, the Company entered into a definitive agreement with a wholly-owned subsidiary of Swisher Hygiene, Inc. to transfer all of the shares of the Company by way of a statutory merger. In the transaction, the stockholders of the Company will be issued 9.2 million shares of Swisher Hygiene, Inc.’s common stock at the agreed upon value of $50.1 million. In addition, Swisher Hygiene, Inc. will also assume approximately $41.5 million of the Company’s debt. The agreement is subject to customary closing conditions and regulatory approvals. Upon satisfaction of all conditions, it is expected that the transaction will be completed no later than March 31, 2011.

Schedule I

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Supplementary Information
Consolidating Balance Sheet
December 31, 2010
(See Accountants’ Review Report)


	Choice		Realty			Elimination			Consolidated

ASSETS
Current assets:
Cash	$	424,491	$	3,773		$	—		$	428,264
Accounts receivable, net		6,141,132		—			—			6,141,132
Inventories		247,570		—			—			247,570
Prepaid expenses		782,772		—			—			782,772
Deposits		144,697		—			—			144,697
Deferred tax asset		181,222		—			—			181,222

Total current assets		7,921,884		3,773			—			7,925,657
Property and equipment, net		25,787,229		1,827,000			954,729			28,568,958
Goodwill		13,957,814		—			—			13,957,814
Intangible assets, net		3,250,677		—			—			3,250,677
Notes receivable		725,584		—			(373,425	)		352,159
Deferred financing costs, net		1,490,716		—			—			1,490,716

	$	53,133,904	$	1,830,773		$	581,304		$	55,545,981


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Line of credit	$	5,747,726	$	—		$	—		$	5,747,726
Current portion of long-term debt		3,830,933		44,192			—			3,875,125
Current portion of notes payable to related parties		77,542		—			—			77,542
Current portion of capital lease obligations		25,552		—			—			25,552
Accounts payable and accrued expenses		4,954,900		15,378			—			4,970,278

Total current liabilities		14,636,653		59,570			—			14,696,223

Long-term liabilities:
Long-term debt, net of current portion		31,162,540		1,405,815			—			32,568,355
Notes payable to related parties, net of current portion		1,227,219		373,425			(373,425	)		1,227,219
Capital lease obligations, net of current portion		8,964		—			—			8,964
Deferred tax liability		1,065,720		—			—			1,065,720

		33,464,443		1,779,240			(373,425	)		34,870,258

Stockholders’ equity (deficit)		5,032,808		(8,037	)		954,729			5,979,500

	$	53,133,904	$	1,830,773		$	581,304		$	55,545,981

Schedule II

CHOICE ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATE

Supplementary Information
Consolidating Statement of Operations
Three Months Ended December 31, 2010
(See Accountants’ Review Report)


	Choice		Realty			Elimination			Consolidated

Revenue	$	15,654,862	$	44,520		$	(44,520	)	$	15,654,862
Cost of sales		11,387,460		—			—			11,387,460

Gross profit		4,267,402		44,520			(44,520	)		4,267,402
Operating expenses		2,876,702		27,895			(44,520	)		2,860,077

Income from operations		1,390,700		16,625			—			1,407,325
Other income expenses:
Interest and other, net		908,879		21,859			—			930,738

Net income (loss)	$	481,821	$	(5,234	)	$	—		$	476,587

EX-99.3 5 g26653exv99w3.htm EX-99.3 exv99w3

EXHIBIT 99.3

SWISHER HYGIENE INC. AND
SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements

December 31, 2010

SWISHER HYGIENE INC. AND SUBSIDIARIES
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2010			4

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010			5

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			6

SWISHER HYGIENE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On February 13, 2011, Swisher Hygiene Inc. (“Swisher” or the “Company”) entered into an agreement and plan of merger (the “Agreement”) by and among Swisher, Swsh Merger Sub, Inc., Choice Environmental Services, Inc., a Florida corporation (“Choice”), and other parties set forth in the Agreement. The Agreement provided for the acquisition of Choice by Swisher by way of merger. On March 1, 2011, the parties completed the transaction and Choice became a wholly-owned subsidiary of Swisher.

In connection with this transaction, Swisher issued 8,281,923 shares of its common stock to the former shareholders of Choice and assumed approximately $40.9 million in debt, and paid down $39.2 million of this debt with proceeds from the February 11, 2011 Subscription Receipts Offering (the “Offering”).

Under the terms of the Offering, on February 11, 2011 Swisher issued 12,262,500 subscription receipts at a price of $4.80 per subscription receipt, for aggregate gross proceeds of $58,859,594. Each subscription receipt entitled the holder to acquire one share of the common stock of Swisher, without payment of any additional consideration, upon completion of the Company’s acquisition of Choice. On March 1, 2011 and after the completion of the merger, the Company issued 12,262,500 shares of its common stock in exchange for the outstanding subscription receipts.

The following unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of Swisher and Choice after giving effect to (i) the Company’s acquisition of Choice on March 1, 2011 as well as (ii) the issuance of common stock under the terms of the Offering and the assumptions, reclassifications, and adjustments described in the notes to unaudited pro forma condensed combined financial statements.

These unaudited pro forma condensed combined financial statements have been compiled from and include:


	(a)	An unaudited pro forma condensed combined balance sheet combining the audited consolidated balance sheet of Swisher and the unaudited consolidated balance sheet of Choice as of December 31, 2010, included in the supplemental schedules in the unaudited consolidated financial statements of Choice in Exhibit 99.2, giving effect to the Choice acquisition as if it occurred on December 31, 2010.


	(b)	An unaudited pro forma condensed combined statement of operations combining the audited consolidated statement of operations of Swisher for the year ended December 31, 2010 with the audited statement of operations of Choice for the year ended September 30, 2010 (which is the fiscal year end of Choice), included in the supplemental schedules in the audited consolidated financial statements of Choice in Exhibit 99.1, giving effect to the Choice acquisition as if it had occurred on January 1, 2010. We believe any difference resulting from the differing period end dates is immaterial to the pro forma condensed combined financial statements.

The historical consolidated financial statements of Choice included in Exhibit 99.1 and Exhibit 99.2, include Choice Realty Holdings, LLC (“Choice Realty”), a related party through common ownership, which is required to be consolidated since Choice supports Choice Realty, who does not have sufficient financial resources to support its own activities. The Company did not purchase the assets of Choice Realty in the acquisition of Choice; and, therefore, we have not included Choice Realty in the historical amounts of Choice for the following unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements are based on preliminary valuations of assets and liabilities acquired and consideration paid in the acquisition of Choice. These preliminary amounts could change as additional information becomes available. These changes could result in material variances between the Company’s future financial results and the amounts presented in these unaudited pro forma condensed combined financial statements, including fair values recorded, as well as expenses and cash flows associated with these items.

The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Company had operated Choice, or if the acquisition had occurred as of the date or during the period presented, nor is it necessarily indicative of future operating results or financial position. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical audited consolidated financial statements and notes to consolidated financial statements of the Company, the historical audited consolidated financial statements and notes to consolidated financial statements of Choice, and the historical unaudited consolidated financial statements and notes to consolidated financial statements of Choice, which financial statements are included in this report.

SWISHER HYGIENE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2010
(expressed in thousands)


	Historical
	Swisher		Choice											Condensed
	Hygiene		Environmental		Pro Forma				Pro Forma					Combined
	Inc.		Services, Inc.		Adjustments		Notes		Adjustments			Notes		Pro Forma

Current assets	ASSETS
Cash, cash equivalents, and restricted cash	$	44,125	$	424	$	58,860		a	$	(47,832	)		b	$	55,577
Accounts receivable, net		7,068		6,141		—				—					13,209
Inventory		2,968		248		—				—					3,216
Deferred income taxes and other assets		895		1,108		—				(181	)		c		1,822

Total current assets		55,056		7,921		58,860				(48,013	)				73,824

Property and equipment, net		11,324		25,787		—				3,956			d		41,067

Other assets						—
Goodwill		29,660		13,958		—				35,902			e		79,520
Other intangible assets, net		7,669		3,251		—				27,469			e		38,389
Other noncurrent assets		2,525		2,217		—				(1,491	)		f		3,251

Total other assets		39,854		19,426		—				61,880					121,160



	$	106,234	$	53,134	$	58,860			$	17,823				$	236,051


LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	9,335	$	4,955	$	—			$	—				$	14,290
Short term obligations		15,379		9,682		—				(8,660	)		b, f		16,401

Total current liabilities		24,714		14,637		—				(8,660	)				30,691

Long term obligations		31,029		32,398		—				(27,804	)		b, f		35,623
Deferred income tax liabilities		1,700		1,066		—				10,539			c		13,305
Other long term liabilities		2,763		—		—				—					2,763

Total noncurrent liabilities		35,492		33,464		—				(17,265	)				51,691

Commitments and contingencies		—		—		—				—					—
Equity		46,028		5,033		58,860		a		43,748			h		153,669



	$	106,234	$	53,134	$	58,860			$	17,823				$	236,051

See notes to unaudited pro forma condensed combined financial statements

SWISHER HYGIENE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
(expressed in thousands, except share and per share data)


	Historical Year Ended
	December 31,			September 30,
	2010			2010
	Swisher			Choice
	Hygiene			Environmental			Pro Forma					Pro Forma
	Inc.			Services, Inc.			Adjustments			Notes		Combined

Revenue
Product	$	37,690		$	4,998		$	—				$	42,688
Services		17,737			39,896			—					57,633
Franchise and other		8,225			—			—					8,225


Total revenue		63,652			44,894			—					108,546
Costs and Expenses
Cost of sales		23,597			14,576			—					38,173
Route expenses		13,931			14,429			—					28,360
Selling, general and administrative		31,258			8,112			(534	)		d		38,836
Merger expenses		5,122			—			—					5,122
Depreciation and amortization		4,857			3,671			4,634			h		13,162


Total costs and expenses		78,765			40,788			4,100					123,653


(Loss) Income from Operations		(15,113	)		4,106			(4,100	)				(15,107	)


Other Income (Expense), net		(757	)		(3,164	)		1,466			i		(2,455	)


Net (Loss) Income Before Income Tax		(15,870	)		942			(2,634	)				(17,562	)

Income Tax Expense (Benefit)		1,700			577			(577	)		c		1,700


Net (Loss) Income	$	(17,570	)	$	365		$	(2,057	)			$	(19,262	)


Loss per Share Basic and diluted	$	(0.26	)									$	(0.22	)


Weighted-Average Common Shares Used in the Computation of Loss per Share
Basic and diluted		66,956,371											87,500,794

See notes to unaudited pro forma condensed combined financial statements

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(expressed in thousands, except share and per share amounts)


1.	Basis of Pro Forma Presentation

These unaudited pro forma condensed combined financial statements have been compiled from and include:


	(a)	An unaudited pro forma condensed combined balance sheet combining the audited consolidated balance sheet of Swisher and the unaudited consolidated balance sheet of Choice as of December 31, 2010, included in the supplemental schedules in the unaudited consolidated financial statements of Choice in Exhibit 99.2, giving effect to the Choice acquisition as if it occurred on December 31, 2010.


	(b)	An unaudited pro forma condensed combined statement of operations combining the audited consolidated statement of operations of Swisher for the year ended December 31, 2010 with the audited statement of operations of Choice for the year ended September 30, 2010 (which is the fiscal year end of Choice), included in the supplemental schedules in the audited consolidated financial statements of Choice in Exhibit 99.1, giving effect to the Choice acquisition as if it had occurred on January 1, 2010. We believe any difference resulting from the differing period end dates is immaterial to the pro forma condensed combined financial statements.

The historical consolidated financial statements of Choice include Choice Realty Holdings, LLC (Choice Realty), a related party through common ownership, which is required to be consolidated since Choice supports Choice Realty, who does not have sufficient financial resources to support its own activities. The Company did not purchase the assets of Choice Realty in the acquisition of Choice; and, therefore, we have not included Choice Realty in the historical amounts of Choice for the following unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical audited consolidated financial statements and notes to consolidated financial statements of the Company contained in its 2010 Annual Report on Form 10-K for the year ended December 31, 2010, filed with Securities and Exchange Commission on March 31, 2011; the historical audited consolidated financial statements and notes to consolidated financial statements of Choice, which are included as Exhibit 99.1 to this

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

Current Report on Form 8-K/A; and the historical unaudited consolidated financial statements and notes to consolidated financial statements of Choice, which are included as Exhibit 99.2 to this Current Report on Form 8-K/A.


2.	Preliminary Estimated Purchase Price Allocation

The following table represents the preliminary estimated purchase price allocation as of March 1, 2011 (in thousands):


Consideration:
Issuance of shares at stock price of $5.89	$	48,781
Debt assumed		42,798
Cash paid		5,700


Total purchase price	$	97,279

The debt assumed includes a prepayment penalty of $1,854 as a result of the Company paying down $39,216 of the assumed debt as part of the acquisition of Choice as of March 1, 2011.

The preliminary allocation of the purchase price is based on the best information available to management at the time that these unaudited pro forma condensed combined financial statements were filed. 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 addition 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 (in thousands):


Net tangible assets acquired:
Cash and cash equivalents	$	341
Receivables, net		6,096
Inventory		151
Property and equipment		29,743
Franchise agreements		27,840
Non compete agreements		2,880
Other assets		1,536
Accounts payable and expenses		(6,221	)
Capital leases		(3,995	)
Deferred income tax liabilities		(11,605	)

		46,766
Goodwill		50,513

Total purchase price		97,279
Less: Debt assumed		40,944
Less: Issuance of shares		48,781


Cash paid (including prepayment penalty)	$	7,554

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

Employment agreements were entered into with four individuals as part of the acquisition of Choice. These employment agreements provided a salary, bonus, stock option and restricted stock awards, and included a covenant to not compete for a 2.5 year period. The bonus available is equal to 50% of the employee’s salary and is contingent on the performance of Choice for the calendar year 2010. The salary, stock awards, and bonus will all be recorded as compensation over the periods in which it is earned and we have not made any adjustments for these items in the unaudited pro forma condensed combined financial statements.


3.	Pro forma adjustments (a, b, c, d, e, f, g, h, and i as referenced in the unaudited pro forma condensed combined financial statements)

The adjustments included in the unaudited pro forma condensed combined financial statements are those that are considered to be directly attributable to the acquisition of Choice and the issuance of common stock under the terms of the Offering and that provide information as to how the condensed combined historical financial statements may have been affected had those events occurred as of December 31, 2010, and at the beginning of the year ended December 31, 2010, respectively. These adjustments are as follows:


*(a)*	*Proceeds from the Offering and issuance of Swisher common stock (in thousands, except per share data)*

In connection with the announced acquisition of Choice, on February 11, 2011, we issued 12,262,500 subscription receipts at a price of $4.80 for aggregate gross proceeds of $58,860. Each subscription receipt entitled the holder to acquire one share of the Company’s common stock upon completion of the Company’s acquisition of Choice. After completion of the acquisition of Choice on March 1, 2011, the Company issued 12,262,500 shares of its common stock in exchange for the outstanding subscription receipts. The adjustment does not include a reduction in the actual cash received by the Company for fees of approximately $3,178.


*(b)*	*Cash (in thousands)*

In connection with the consummation of the acquisition of Choice, on March 1, 2011 we paid $5,700 of cash to certain shareholders of Choice who received warrants to purchase 918,076 additional shares of the Company’s common stock at an exercise price of $6.21. Additionally, the pro forma adjustments reflect the pay off of $40,278 of the Choice debt present at December 31, 2010 and an additional $1,854 prepayment penalty. See pro forma adjustment (f).


*(c)*	*Deferred taxes*

We made the following adjustments to deferred taxes as a result of the acquisition of Choice (in thousands):


	Net
	increase
	(decrease)

Deferred tax assets	$	(181	)
Deferred tax liabilities		10,539

	$	10,358

Deferred taxes are primary due to temporary differences related to intangibles and property and equipment and have been calculated based on a statutory rate. In addition, we made an adjustment for $577

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

for income tax expense as the Choice 2010 taxable income would have been able to be offset against the combined companies net operating losses if Swisher had operated Choice during 2010.


*(d)*	*Property and equipment*

Upon completion of the acquisition of Choice, the Company estimated the fair value of property and equipment acquired and property leased under capital leases. We made the following adjustments between the historical net value and the estimated fair value of the property and equipment, including capital leased property, acquired at December 31, 2010 as well as changes to depreciation expense for the year ended December 31, 2010 (in thousands):


	Historical		Estimated
	cost, net		fair value

Machinery and equipment	$	6,368	$	6,224
Vehicles		18,690		19,748
Capital leases		—		3,049
Leasehold improvements		659		659
Office equipment		70		70

	$	25,787	$	29,743

Increase in depreciation expense. See pro forma adjustment(h)			$	384

See pro forma adjustment (f) for capital lease obligations related to the leased property that were executed in connection with the Choice acquisition with shareholders of Choice. We also made an adjustment of $534 for rent expense related to the capital leases.


*(e)*	*Goodwill and other intangibles(in thousands)*

Goodwill

We recorded a pro forma adjustment related to goodwill of $35,902 as a result of the purchase price allocation of the acquired assets and liabilities of Choice assuming the transaction occurred on December 31, 2010. This adjustment also includes the removal of the historical Choice goodwill as of December 31, 2010 of $13,958.

Other intangibles

We recorded a pro forma adjustment related to other intangibles of $27,469 to record the fair value of the following identifiable other intangible assets (in thousands):


	Estimated		Weighted		Amortization
	fair value		average life		expense

Franchise agreements	$	27,840		7	$	3,977
Non compete agreements		2,880		2.5		1,152

	$	30,720		6.6	$	5,129

The pro forma adjustment includes the removal of other intangibles of $3,251 on the historical Choice balance sheet at December 31, 2010.

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

We adjusted amortization expense to remove the $879 of amortization expense from the historical Choice statement of operations for the year ended September 30, 2010 and recorded the amount of $5,129 for amortization expense for the year ended December 31, 2010, related to the acquired intangibles as if the acquisition of Choice occurred on January 1, 2010. See pro forma adjustment (h).


*(f)*	*Debt, including capital leases(in thousands)*

Pro forma adjustments include (i) the payoff of $40,278 of the assumed Choice debt present at December 31, 2010, (ii) the capital leases entered into in connection with the acquisition of Choice, (iii) the revaluation of the remaining assumed debt to fair value, and (iv) the removal of unamortized debt financing costs of $1,491 included in other noncurrent assets on the unaudited condensed balance sheet of Choice at December 31, 2010.


Debt paid down	$	(40,278	)
Capital leases entered into in connection with the acquisition of Choice		3,995
Fair value adjustment for the remaining Choice debt		(181	)

Total pro forma adjustments to debt, including capital leases	$	(36,464	)

In connection with the payoff of $40,278 of the assumed Choice debt present at December 31, 2010, the Company would have paid a prepayment penalty of $1,854. Total cash paid in connection with the retirement of the debt is:


Debt paid down in the acquisition of Choice	$	40,278
Prepayment penalty		1,854

	$	42,132

See pro forma adjustment (h) below for interest expense and amortization related to debt discounts and debt financing costs.


*(g)*	*Capital adjustments*

We recorded the following adjustments to the equity accounts (in thousands):


Equity
Shares issued in connection with the private placement	$	58,860



Elimination of historical equity accounts of Choice		(5,033	)
Shares issued in connection with the acquisition of Choice		48,781

	$	43,748

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)


*(h)*	*Depreciation and amortization*

We recorded the following adjustments to depreciation and amortization (in thousands):


Adjustment for difference in amortization of acquired other intangibles acquired in the Choice acquisition ($5,129-$879). See pro forma adjustment(e)	$	4,250
Adjustment for depreciation of property leased under capital leases. See pro forma adjustment(d)		313
Adjustment for difference in depreciation of fixed assets, other than capital leases, based on fair value. See pro forma adjustment(d)		71

	$	4,634


*(i)*	*Interest expense*

We recorded the following adjustments to interest expense (in thousands):


Elimination of interest expense for debt paid down. See pro forma adjustment(f)	$	(1,630	)
Interest expense related to capital lease obligations. See pro forma adjustment(f)		230
Elimination of interest expense for amortization of debt discounts and debt financing costs related to debt paid down. See pro forma adjustment(f)		(66	)

	$	(1,466	)


4.	Pro forma Earnings Per Share

The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based on the weighted average number of the Company’s common shares outstanding at December 31, 2010 as adjusted for the following:


Basic and Diluted
Weighted-average common shares outstanding, as reported			66,956,371
Shares issued in connection with the acquisition of Choice			8,281,923
Shares issued in connection with the private placement			12,262,500

Weighted-average common shares outstanding, pro forma			87,500,794