10-Q/A 1 swsh_10qa.htm AMENDMENT swsh_10qa.htm


United States
Securities and Exchange Commission
Washington, D.C.  20549
 
FORM 10-Q/A
(Amendment No. 1)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to _____________.
 
001-35067
Commission File Number
 
 
SWISHER HYGIENE INC.
(Exact Name Of Registrant as Specified in Its Charter)
 
Delaware
 
27-3819646
(State or Other Jurisdiction of
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
   
     
4725 Piedmont Row Drive, Suite 400
   
Charlotte, North Carolina
 
28210
(Address of Principal Executive Offices)
 
(Zip Code)
 
(704) 364-7707
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes o    No þ
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Check one:
 
Larger Accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o    Noþ
 
Number of shares outstanding of each of the registrant's classes of Common Stock at May 13, 2011: 165,902,082 shares of Common Stock, $0.001 par value per share.
 


 
 

 
 
SWISHER HYGIENE INC.
 
FORM 10-Q/A
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
 
EXPLANATORY NOTE
 
Swisher Hygiene Inc. (the "Company" or "Swisher") is filing this Amendment No. 1 to Quarterly Report on Form 10-Q/A for the three months ended March 31, 2011 (the "Amended 10-Q") to reflect adjustments to previously reported financial information, as discussed in Note 2, "Restatement of Condensed Consolidated Financial Statements" to the accompanying Notes to Condensed Consolidated Financial Statements. The adjustments reflect changes to the previously reported information identified as a result of the audit process conducted by our independent registered public accounting firm, the independent Audit Committee review, senior management's evaluation of the prior accounting for the related findings and concerns raised by a former employee, and certain other matters. For the reader's convenience, we refer to these collectively as the "Audit and Review Process." As part of the Audit and Review Process, additional adjustments to the Prior Financial Information, including adjustments to the financial information in this Amended 10-Q were identified. We refer to the adjustments identified in the Audit and Review Process as the "Restatement Adjustments." The term Restatement Adjustments refers to adjustments to correct errors in the Company's prior accounting and an adjustment to reflect the impact of a change in accounting estimate resulting from the Company's reassessment of the remaining useful lives of its property and equipment. In summary, the Restatement Adjustments have resulted in the following changes to the previously reported financial information as of March 31, 2011 and for the three month period then ended:
 
   
As Reported
   
Restatement Adjustments
   
As Restated
 
   
(In thousands except per share amounts)
 
Total assets
  $ 306,420     $ 2,936     $ 309,356  
                         
Total liabilities
  $ 90,588     $ 5,406     $ 95,994  
                         
Total stockholders' equity
  $ 215,832     $ (2,470 )   $ 213,362  
                         
Revenue
  $ 27,396     $ (111 )   $ 27,285  
                         
Net loss
  $ (3,215 )   $ (2,783 )   $ (5,998 )
                         
Loss per share
  $ (0.03 )   $ (0.02 )   $ (0.05 )
 
Audit Committee Review and Restatements
 
On March 21, 2012, Swisher's Board of Directors (the "Board") determined that the Company's previously issued interim financial statements for the quarterly periods ended June 30, 2011 and September 30, 2011, and the other financial information in the Company's quarterly reports on Form 10-Q for the periods then ended should no longer be relied upon.  Subsequently, on March 27, 2012, the Audit Committee concluded that the Company's previously issued interim financial statements for the quarterly period ended March 31, 2011 should no longer be relied upon. The Board and Audit Committee made these determinations  in connection with the Audit Committee's then ongoing review into certain accounting matters.  We refer to the interim financial statements and the other financial information described above as the "Prior Financial Information." 
 
The Audit Committee initiated its review after an informal inquiry by the Company and its independent auditor regarding a former employee's concerns with the application of certain accounting policies. The Company first initiated the informal inquiry by requesting that both the Audit Committee and the Company’s independent auditor look into the matters raised by the former employee. Following this informal inquiry, the Company’s senior management and its independent auditor advised the Chairman of the Company’s Audit Committee regarding the matters. Subsequently, the Audit Committee determined that an independent review of the matters presented by the former employee should be conducted.  During the course of its independent review, and due in part to the significant number of acquisitions made by the Company, the Audit Committee determined that it would be in the best interest of the Company and its stockholders to review the accounting entries relating to each of the 63 acquisitions made by the Company during the year ended December 31, 2011.
 
 
i

 
On May 17, 2012, Swisher announced that the Audit Committee had substantially completed the investigative portion of its internal review. In connection with substantial completion of its internal review, the Audit Committee recommended to the Board that the Company's Chief Financial Officer and two additional senior accounting personnel be separated from the Company as a result of their conduct in connection with the preparation of the Prior Financial Information.  Following this recommendation, the Board determined that these three accounting personnel be separated from the Company, effective immediately.  In making these employment determinations, the Board did not identify any conduct by these employees intended for or resulting in any personal benefit.
 
On May 17, 2012, the Company further announced that it had commenced a search process for a new Chief Financial Officer and that Steven Berrard, then the Company’s President and Chief Executive Officer, would also serve as the Company’s interim Chief Financial Officer.
 
NASDAQ and TSX Matters
 
On April 11, 2012, the Company notified the NASDAQ Stock Market LLC ("NASDAQ") that the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 would be delayed beyond the April 16, 2012 extended due date. On April 11, 2012, the Company received a letter from NASDAQ indicating that the Company was not in compliance with the filing requirements for continued listing under NASDAQ Listing Rule 5250(c)(1) as a result of the Company's notification to NASDAQ that the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 would be delayed beyond the April 16, 2012 extended due date.
 
On May 15, 2012, the Company notified NASDAQ that the filing of the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2012 would not be timely filed.
 
Subsequently, on May 15, 2012, the Company received a letter from NASDAQ indicating that the Company was not in compliance with the filing requirements for continued listing under NASDAQ Listing Rule 5250(c)(1) as a result of the Company's notification to NASDAQ that (1) the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 would be delayed beyond the April 16, 2012 extended due date and (2) the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2012 would be delayed beyond the May 21, 2012 extended due date.
 
In accordance with the April 11, 2012 and May 15, 2012 letters from NASDAQ, the Company submitted a plan to regain compliance with NASDAQ's filing requirements for continued listing on June 11, 2012. NASDAQ accepted the Company's plan of compliance, pursuant to which the Company agreed to file the late reports no later than July 30, 2012.
 
On July 25, 2012, the Company notified NASDAQ that the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2012 would be delayed beyond the July 30, 2012 extended due date and requested an extension to file the late reports until September 26, 2012.
 
On July 30, 2012, the Company received a letter from NASDAQ indicating that NASDAQ granted the Company's request for an extension to file the late reports until September 26, 2012.
 
On August 15, 2012, the Company received notification regarding the Company's additional non-compliance with NASDAQ Listing Rule 5250(c)(1) due to the Company's failure to timely file the Quarterly Report on Form 10-Q for the period ended June 30, 2012 with the Securities and Exchange Commission (the "SEC").
 
On August 30, 2012, the Company notified NASDAQ of the Company's plan to file the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2012 and the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2012 by the existing extension date of September 26, 2012.
 
On September 20, 2012, the Company notified NASDAQ that the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and the Form 10-Qs for the quarterly periods ended March 31, 2012 and June 30, 2012 would not be filed with the SEC by September 26, 2012, which was the extended deadline for the filings previously granted to the Company by NASDAQ. As a result of this notification, on September 21, 2012, the Company received a letter from NASDAQ advising that it remained non-compliant with the requirements for continued listing under NASDAQ Listing Rule 5250(c)(1) due to the Company's failure to timely file the late filings. The letter further indicated that the Company's common stock was subject to delisting from NASDAQ unless it requested a hearing before a NASDAQ Listing Qualifications Panel (the "Panel") within seven calendar days of receipt of the letter.
 
 
ii

 
 
On September 28, 2012, the Company requested a hearing before the Panel to review the Company's plan to regain compliance.
 
On November 7, 2012, the Company presented its plan to regain compliance before the Panel.
 
On November 16, 2012, the Company received notification regarding the Company's additional non-compliance with NASDAQ Listing Rule 5250(c)(1) due to the Company's failure to timely file the Quarterly Report on Form 10-Q for the period ended September 30, 2012 with the SEC.
 
On November 28, 2012, NASDAQ granted the Company's request to remain listed on NASDAQ, subject to meeting specific conditions for continued listing. The conditions to remain listed on NASDAQ were as follows:
 
 
On or before December 31, 2012, the Company must provide a written update to NASDAQ regarding the status of the work toward compliance.
   
On or before January 15, 2013, the audit field work for the delinquent filings must be completed, and a further update shall be provided to NASDAQ regarding the status of work toward compliance.
   
On or before February 19, 2013, the Company must file with the SEC its restated 2011 Form 10-Qs and the 2011 Annual Report on Form 10-K. 
   
On or before February 28, 2013, the Company must file all 2012 Form 10-Qs, as well as provide NASDAQ with an update with respect to its progress on its audit and filing of its Annual Report on Form 10-K for the year ended December 31, 2012.
 
In order to fully comply with the terms of the extension, the Company must be able to demonstrate compliance with all requirements for continued listing on NASDAQ. In the event the Company is unable to do so, its securities may be delisted from NASDAQ.
 
On December 31, 2012, the Company provided the Panel an update of the status of its work toward compliance and that work on the related reports was expected to continue through their respective filing dates.
 
On January 2, 2013, the Company received notification regarding the Company's additional non-compliance due to the Company's failure to hold its 2012 annual meeting of stockholders by December 31, 2012, as required by NASDAQ Listing Rule 5620.
 
On January 15, 2013, the Company provided the Panel a further update on the status of its work toward compliance.
 
On January 22, 2013, the Company received a letter from the Panel noting that the Company did not satisfy the January 15, 2013 deadline regarding the completion of audit field work.
 
On January 29, 2013, the Company provided the Panel with a further update on the status of its work toward compliance.  The Company noted that it continued to believe it would file the restated Form 10-Qs and Annual Report on Form 10-K for 2011 with the SEC by February 19, 2013 and the Form 10-Qs for 2012 by February 28, 2013.
 
 
iii

 
On February 1, 2013, the Company provided the Panel with a further update on the status of its work toward compliance.
 
On February 4, 2013, the Company received notice from the Panel that it had determined to delist the Company's shares of common stock from NASDAQ, and would suspend trading in the Company's shares of common stock effective at the open of business on Wednesday, February 6, 2013.
 
On February 5, 2013, the Company requested that the Panel reconsider its February 4th delisting determination and advised the Panel that it continued to expect to file the Restated 2011 Forms 10-Q and 2011 Form 10-K with the SEC by February 19, 2013 and the 2012 Forms 10-Q by February 28, 2013.
 
On February 5, 2013, the Panel granted the Company's request for reconsideration and determined not to delist the Company's shares of common stock from NASDAQ.
 
During the process of regaining compliance with NASDAQ, the Company expects that its common stock will continue trading on NASDAQ under the symbol "SWSH," however the Company can provide no assurance that it will satisfy the conditions required to maintain its listing on NASDAQ or, even if the Company satisfies the conditions, that NASDAQ will determine to continue the Company's listing.
 
Also, the Company has been noted in default of its continuous disclosure obligations by the securities regulators in several provinces of Canada for certain failures stemming from the non-compliance described above, including the failure to timely file its annual financial statements for the year ended December 31, 2011 and related information, and for publicly acknowledging that certain of its previously filed financial statements may no longer be relied upon. In the event that the continuous disclosure defaults are not remedied, the Canadian securities regulators may issue a general cease trade order against the Company prohibiting trading of the Company's shares in Canada.
 
On February 11, 2013, the Company received notice from the TSX indicating the TSX had determined to delist the common stock of the Company at the close of market on March 11, 2013, subject to the Company meeting TSX continued listing requirements, primarily relating to its failure to file certain of its financial statements. If the Company is able to complete its filings and meet all conditions for continued listing on the TSX before March 11, 2013, the Company may maintain its listing on the TSX.  The Company can provide no assurance that it will satisfy the conditions required to maintain its listing on TSX or, even if the Company satisfies the conditions, that TSX will determine to continue the Company's listing.
 
Employee Matters
 
On May 14, 2012, the Board, following the recommendation of the Audit Committee, determined that Mike Kipp, the Company's Senior Vice President and Chief Financial Officer should be separated from the Company.  The Board also determined that Steven Berrard, then the Company's President and Chief Executive Officer, would also serve as the Company's Interim Chief Financial Officer.
 
On June 6, 2012, the Board appointed Brian Krass as the Senior Vice President and Chief Financial Officer of the Company.
 
On August 17, 2012, Steven Berrard resigned as President and Chief Executive Officer of the Company.  Mr. Berrard continued his service as a member of the Board.
 
On August 19, 2012, the Board appointed Thomas Byrne as Interim President and Chief Executive Officer of the Company.
 
On September 21, 2012, Mr. Krass resigned as Senior Vice President and Chief Financial Officer of the Company.
 
On September 27, 2012, the Board appointed William T. Nanovsky as Interim Senior Vice President and Chief Financial Officer of the Company, effective September 24, 2012.
 
Effective November 9, 2012, Hugh Cooper resigned as Senior Vice President of the Company.
 
On February 18, 2013, the Board removed "Interim" from the officer titles of Messrs. Byrne and Nanovsky, making them President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, respectively.
 
 
iv

 
Securities Litigation
 
There have been six shareholder lawsuits filed in federal courts in North Carolina and New York asserting claims relating to the Company's March 28, 2012 announcement regarding the Company's Board conclusion that the Company's previously issued interim financial statements for the quarterly periods ended March 31, 2011, June 30, 2011 and September 30, 2011, and the other financial information in the Company's quarterly reports on Form 10-Q for the periods then ended, should no longer be relied upon and that an internal review by the Company's Audit Committee primarily relating to possible adjustments to the Company's financial statements was ongoing.
 
On March 30, 2012, a purported Company shareholder commenced a putative securities class action on behalf of purchasers and sellers of the Company's common stock in the U.S. District Court for the Southern District of New York against the Company, the former President and Chief Executive Officer ("CEO"), and the former Vice President and Chief Financial Officer ("CFO"). The plaintiff asserted claims alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on alleged false and misleading disclosures in the Company's public filings. In April and May 2012, four more putative securities class actions were filed by purported Company shareholders in the U.S. District Court for the Western District of North Carolina against the same set of defendants. The plaintiffs in these cases have asserted claims alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") based on alleged false and misleading disclosures in the Company's public filings. In each of the putative securities class actions, the plaintiffs seek damages for losses suffered by the putative class of investors who purchased Swisher common stock.
 
On May 21, 2012, a shareholder derivative action was brought against the Company's former CEO and CFO and the Company's directors for alleged breaches of fiduciary duty by another purported Company shareholder in the U.S. District Court for the Southern District of New York. In this derivative action, the plaintiff seeks to recover for the Company damages arising out of a possible restatement of the Company's financial statements.
 
On May 30, 2012, the Company, and its former CEO and former CFO filed a motion with the United States Judicial Panel on Multidistrict Litigation ("MDL Panel") to centralize all of the cases in the Western District of North Carolina by requesting that the actions filed in the Southern District of New York be transferred to the Western District of North Carolina.
 
In light of the motion to centralize the cases in the Western District of North Carolina, the Company, and its former CEO and former CFO requested from both courts a stay of all proceedings pending the MDL Panel's ruling. On June 4, 2012, the U.S. District Court for the Southern District of New York adjourned all pending dates in the cases in light of the motion to transfer filed before the MDL Panel. On June 13, 2012, the U.S. District Court for the Western District of North Carolina issued a stay of proceedings pending a ruling by the MDL Panel.
 
On August 13, 2012, the MDL Panel granted the motion to centralize, transferring the actions filed in the Southern District of New York to the Western District of North Carolina. In response, on August 21, 2012, the Western District of North Carolina issued an order governing the practice and procedure in the actions transferred to the Western District of North Carolina as well as the actions originally filed there.
 
On October 18, 2012, the Western District of North Carolina held an Initial Pretrial Conference at which it appointed lead counsel and lead plaintiffs for the securities class actions, and set a schedule for the filing of a consolidated class action complaint and defendant's time to answer or otherwise respond to the consolidated class action complaint. The Western District of North Carolina stayed the derivative action pending the outcome of the securities class actions.
 
The Company has been contacted by the staff of the Atlanta Regional Office of the SEC and by the United States Attorney's Office for the Western District of North Carolina (the "U.S. Attorney's Office") after publicly announcing the Audit Committee's internal review and the delays in filing our periodic reports. The Company has been asked to provide information about these matters on a voluntary basis to the SEC and the U.S. Attorney's Office. The Company is fully cooperating with the SEC and the U.S. Attorney's Office. Any action by the SEC, the U.S. Attorney's Office or other government agency could result in criminal or civil sanctions against the Company and/or certain of its current or former officers, directors or employees.
 
The Amended 10-Q
 
For the convenience of the reader, this Amended 10-Q amends and restates in its entirety the Quarterly Report on Form 10-Q for the three months ended March 31, 2011 (the "Original 10-Q"), which was filed with the SEC on May 16, 2011. However, this Amended 10-Q amends only those items necessary to reflect the Restatement Adjustments, as well as to disclose events that have occurred subsequent to the original filing date that are of such significance that their omission could be materially misleading to the users of the restated financial statements. No other information from the Original 10-Q is amended in this document. In particular, forward-looking statements included in this Amended 10-Q represent management's views as of the date of filing of the Original 10-Q. Such forward-looking statements should not be assumed to be accurate as of any later date. Swisher undertakes no duty to update such information whether as a result of new information, future events or otherwise.
 

 
v

 
 
 
SWISHER HYGIENE INC.
 
FORM 10-Q/A
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
 
TABLE OF CONTENTS
 
     
Page
PART I. FINANCIAL INFORMATION
 
       
ITEM 1.
Unaudited Financial Statements
1
       
   
Condensed Consolidated Balance Sheets
 
   
March 31, 2011 and December 31, 2010
1
       
   
Condensed Consolidated Statements of Operations
 
   
 Three Months Ended March 31, 2011 and 2010
2
       
   
Condensed Consolidated Statement of Stockholders' Equity
 
   
 Three Months Ended March 31, 2011
3
       
   
Condensed Consolidated Statements of Cash Flows
 
   
Three Months Ended March 31, 2011 and 2010
4
       
   
Notes to Condensed Consolidated Financial Statements
5
       
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
26
       
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
42
       
ITEM 4.
Controls and Procedures
42
       
PART II. OTHER INFORMATION
 
ITEM 1.
Legal Proceedings
45
       
ITEM 1A.
Risk Factors
45
       
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
46
       
ITEM 6.
Exhibits
47
 
 

 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except share data)
 
   
March 31, 2011
   
December 31,
 
ASSETS
 
(As Restated)
   
2010
 
Current assets
           
Cash and cash equivalents
  $ 104,988     $ 38,932  
Restricted cash
    -       5,193  
Accounts receivable (net of allowance for doubtful accounts of $463
               
at March 31, 2011 and $334 at December 31, 2010)
    14,817       7,069  
Inventory
    4,271       2,968  
Other assets
    2,495       895  
Total current assets
    126,571       55,057  
Property and equipment, net
    43,050       11,324  
Goodwill
    78,656       29,660  
Other intangibles, net
    56,971       7,669  
Other noncurrent assets
    4,108       2,524  
Total assets
  $ 309,356     $ 106,234  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 19,026     $ 9,335  
Long-term debt and obligations due within one year
    19,749       13,379  
Advances from shareholder
    2,000       2,000  
Total current liabilities     40,775       24,714  
Long-term debt and obligations
    36,877       31,029  
Deferred income tax liabilities
    13,672       1,700  
Other long-term liabilities
    4,670       2,763  
Total noncurrent liabilities
    55,219       35,492  
                 
Commitments and contingencies
               
Stockholders' equity
               
Swisher Hygiene Inc. stockholders’ equity
               
Common stock, par value $0.001, authorized 400,000,000 shares; 148,455,429 and 114,015,063
         
shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively
    148       114  
Additional paid-in capital
    227,782       54,726  
Accumulated deficit
    (14,988 )     (8,996 )
Accumulated other comprehensive income
    316       74  
Total Swisher Hygiene Inc. stockholders’ equity
    213,258       45,918  
Non-controlling interest
    104       110  
Total stockholders' equity
    213,362       46,028  
Total liabilities and stockholders' equity
  $ 309,356     $ 106,234  
                 
See Notes to Condensed Consolidated Financial Statements
 
1

 
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except share and per share data)
 
   
Three Months Ended March 31,
 
   
2011
       
   
(As Restated)
   
2010
 
Revenue
           
Products
  $ 15,427     $ 8,164  
Services
    10,465       4,379  
Franchise and other
    1,393       2,186  
Total revenue
    27,285       14,729  
                 
Costs and expenses
               
Cost of sales
    10,008       5,309  
Route expenses
    7,099       3,174  
Selling, general, and administrative
    14,659       6,507  
Acquisition and merger expenses
    1,264       -  
Depreciation and amortization
    2,895       1,043  
Loss on extinquishment of debt
    1,500       -  
Total costs and expenses
    37,425       16,033  
Loss from operations
    (10,140 )     (1,304 )
                 
Other expense, net
    (2,254 )     (291 )
Net loss before income taxes
    (12,394 )     (1,595 )
                 
Income tax benefit
    6,396       -  
Net loss
  $ (5,998 )   $ (1,595 )
                 
Loss per share
               
Basic and diluted
  $ (0.05 )   $ (0.03 )
                 
                 
Weighted-average common shares used in the
               
computation of loss per share
               
Basic and diluted
    122,780,115       57,829,630  
                 
See Notes to Condensed Consolidated Financial Statements
 
2

 
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
(As Restated)
(In thousands except share data)

                           
Accumulated
   
Swisher
             
               
Additional
         
Other
   
Hygiene Inc.
   
Non-
    Total  
   
Common Stock
   
Paid-in
   
Accumulated
   
Comprehensive
   
Stockholders'
   
Controlling
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Income
   
Equity
   
Interest
   
Equity
 
Balance at
                                               
December 31, 2010
    114,015,063     $ 114     $ 54,726     $ (8,996 )   $ 74     $ 45,918     $ 110     $ 46,028  
Shares issued in connection
                                                         
with private placements
    24,262,500       24       116,046       -       -       116,070       -       116,070  
Shares issued in connection
                                                         
with the acquisition of Choice
    8,281,920       8       48,772       -       -       48,780       -       48,780  
Shares issued in connection
                                                         
with other acquisitions and purchases of property and equipment
    298,082       1       2,143       -       -       2,144       -       2,144  
Conversion of promissory
                                                         
note payable
    1,312,864       1       5,076       -       -       5,077       -       5,077  
Stock based compensation
              802       -       -       802       -       802  
Exercise of stock options
    285,000       -       217       -       -       217       -       217  
Foreign currency translation
                                                         
adjustment
    -       -       -       -       242       242       -       242  
Net loss
    -       -       -       (5,992 )     -       (5,992 )     (6 )     (5,998 )
Balance at
                                                               
March 31, 2011
    148,455,429     $ 148     $ 227,782     $ (14,988 )   $ 316     $ 213,258     $ 104     $ 213,362  
                                                                 
See Notes to Condensed Consolidated Financial Statements
 
3

 
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
   
Three Months Ended March 31,
 
   
2011
       
   
(As Restated)
   
2010
 
Cash used in operating activities
           
 Net loss
  $ (5,998 )   $ (1,595 )
Adjustments to reconcile net loss to net cash used in operating activities:
         
Depreciation and amortization
    2,895       1,043  
Stock based compensation
    802       -  
Unrealized loss on fair value of convertible promissory notes
    1,961       -  
Loss on disposal
    9       -  
Deferred income tax liabilities
    (5,643 )     -  
Changes in working capital components:
               
Accounts receivable
    (1,057 )     (159 )
Inventory
    (478 )     (222 )
Other assets and noncurrent assets
    (560 )     (603 )
Accounts payable, accrued expenses, and other current liabilities
    3,357       1,461  
Cash used in operating activities
    (4,712 )     (75 )
Cash used in investing activities
               
Purchases of property and equipment
    (2,455 )     (1,003 )
Acquisitions, net of cash acquired
    (49,779 )     -  
Restricted cash
    5,193       -  
Cash used in investing activities
    (47,041 )     (1,003 )
Cash provided by financing activities
               
Proceeds from private placements, net of issuance costs
    116,070       -  
Proceeds from line of credit, net of issuance costs
    27,290       -  
Payoff of lines of credit
    (24,948 )     -  
Principal payments on debt
    (820 )     (575 )
Proceeds from exercise of stock options
    217       -  
Payment of shareholder advance
    -       (800 )
Proceeds from advances from shareholders
    -       2,100  
Cash provided by financing activities
    117,809       725  
                 
Net increase (decrease) in cash and cash equivalents
    66,056       (353 )
Cash and cash equivalents at the beginning of the period
    38,932       1,270  
Cash and cash equivalents at the end of the period
  $ 104,988     $ 917  

See Notes to Condensed Consolidated Financial Statements
 
4

 
SWISHER HYGIENE INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 1 — BUSINESS DESCRIPTION
 
Principal Operations
 
Swisher Hygiene Inc. and its wholly-owned subsidiaries (the "Company," "Swisher," "We," or "Our") provide essential hygiene and sanitation solutions to customers throughout much of North America and internationally through its global network of Company-owned operations, franchises and master licensees. These solutions include essential products and services that are designed to promote superior cleanliness and sanitation in commercial environments, while enhancing the safety, satisfaction and well-being of employees and patrons. These solutions are typically delivered by employees on a regularly scheduled basis and involve providing our customers with: (i) consumable products such as soap, paper, cleaning chemicals, detergents, and supplies, together with the rental and servicing of dish machines and other equipment for the dispensing of those products; (ii) the rental of facility service items requiring regular maintenance and cleaning, such as floor mats, mops, bar towels and linens; (iii) manual cleaning of their facilities; and (iv) solid waste collection services. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries. In addition, our solid waste collection services provide services primarily to commercial and residential customers through contracts with municipalities or other governmental agencies.
 
Prospectively, we intend to grow in both existing and new geographic markets through a combination of organic and acquisition growth. However, we will focus our investments towards those opportunities which will most benefit our core businesses, chemical and linen processing. Subsequent to the sale of our Waste segment in November, 2012, any solid waste offering will be via outsourced waste and recycling services delivered by third-party haulers.
 
As of March 31, 2011, the Company has 83 Company-owned operations and 6 franchise operations located throughout the United States and Canada and has entered into 9 Master License Agreements covering the United Kingdom, Portugal, the Netherlands, Singapore, the Philippines, Taiwan, Korea, Hong Kong/Macau/China, and Mexico.
 
See Note 16, "Subsequent Events" for additional information concerning the sale of the Waste segment in November of 2012.
 
NOTE 2 —  RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
On March 21, 2012, Swisher's Board of Directors (the "Board") determined that the Company's previously issued interim financial statements for the quarterly periods ended June 30, 2011 and September 30, 2011, and the other financial information in the Company's quarterly reports on Form 10-Q for the periods then ended should no longer be relied upon.  Subsequently, on March 27, 2012, the Audit Committee concluded that the Company's previously issued interim financial statements for the quarterly period ended March 31, 2011 should no longer be relied upon. The Board and Audit Committee made these determinations  in connection with the Audit Committee's then ongoing review into certain accounting matters.  We refer to the interim financial statements and the other financial information described above as the "Prior Financial Information." 
 
The Audit Committee initiated its review after an informal inquiry by the Company and its independent auditor regarding a former employee's concerns with the application of certain accounting policies. The Company first initiated the informal inquiry by requesting that both the Audit Committee and the Company’s independent auditor look into the matters raised by the former employee. Following this informal inquiry, the Company’s senior management and its independent auditor advised the Chairman of the Company’s Audit Committee regarding the matters. Subsequently, the Audit Committee determined that an independent review of the matters presented by the former employee should be conducted.  During the course of its independent review, and due in part to the significant number of acquisitions made by the Company, the Audit Committee determined that it would be in the best interest of the Company and its stockholders to review the accounting entries relating to each of the 63 acquisitions made by the Company during the year ended December 31, 2011.
 
On May 17, 2012, Swisher announced that the Audit Committee had substantially completed the investigative portion of its internal review. In connection with substantial completion of its internal review, the Audit Committee recommended to the Board that the Company's Chief Financial Officer and two additional senior accounting personnel be separated from the Company as a result of their conduct in connection with the preparation of the Prior Financial Information.  Following this recommendation, the Board determined that these three accounting personnel be separated from the Company, effective immediately.  In making these employment determinations, the Board did not identify any conduct by these employees intended for or resulting in any personal benefit.
 
 
5

 
On May 17, 2012, the Company further announced that it had commenced a search process for a new Chief Financial Officer and that Steven Berrard, then the Company’s President and Chief Executive Officer, would also serve as the Company’s interim Chief Financial Officer.
 
On February 19, 2013, the Company filed amended quarterly reports on Form 10-Q/A for each of the quarterly periods ended March 31, June 30, and September 30, 2011 (the "Affected Periods"), including restated financial statements for the Affected Periods, to reflect adjustments to previously reported financial information, as discussed in Note 2, "Restatement of Condensed Consolidated Financial Statements" to the accompanying Notes to Condensed Consolidated Financial Statements. The adjustments reflect changes to the previously reported information identified as a result of the audit process conducted by our independent registered public accounting firm, the independent Audit Committee review, senior management's evaluation of the prior accounting for the related findings and concerns raised by a former employee, and certain other matters. For the reader's convenience, we refer to these collectively as the "Audit and Review Process." As part of the Audit and Review Process, additional adjustments to the Prior Financial Information were identified. We refer to the adjustments identified in the Audit and Review Process as the "Restatement Adjustments." The term Restatement Adjustments refers to adjustments to correct errors in the Company's prior accounting and an adjustment to reflect the impact of a change in accounting estimate resulting from the Company's reassessment of the remaining useful lives of its property and equipment.
 
Restatement of Condensed Consolidated Financial Statements
 
The following tables present the impact of the Restatement Adjustments on the Company's previously reported Condensed Consolidated Balance Sheet as of March 31, 2011 and the Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2011:
 
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands)
    March 31, 2011   
         
Restatement
       
   
As Reported
   
Adjustments
   
As Restated
 
ASSETS
                 
Current assets
                 
Cash and cash equivalents
  $ 105,070     $ (82 )   $ 104,988  
Accounts receivable, net
    14,894       (77 )     14,817  
Inventory
    3,765       506       4,271  
Other assets
    2,798       (303 )     2,495  
Total current assets
    126,527       44       126,571  
Property and equipment, net
    44,202       (1,152 )     43,050  
Goodwill
    87,878       (9,222 )     78,656  
Other intangibles, net
    44,076       12,895       56,971  
Other noncurrent assets
    3,737       371       4,108  
Total assets
  $ 306,420     $ 2,936     $ 309,356  
LIABILITIES AND STOCKHOLDERS' EQUITY
                       
Current liabilities
                       
Accounts payable and accrued expenses
  $ 18,025     $ 1,001     $ 19,026  
Long-term debt and obligations due within one year
    19,734       15       19,749  
Advances from shareholder
    2,000       -       2,000  
Total current liabilities
    39,759       1,016       40,775  
Long-term debt and obligations
    37,527       (650 )     36,877  
Deferred income tax liabilities
    9,747       3,925       13,672  
Other long-term liabilities
    3,555       1,115       4,670  
Total noncurrent liabilities
    50,829       4,390       55,219  
                         
Commitments and contingencies
                       
                         
Stockholders' equity
                       
Swisher Hygiene Inc. stockholders’ equity
                       
Common stock
    147       1       148  
Additional paid-in capital
    227,569       213       227,782  
Accumulated deficit
    (12,204 )     (2,784 )     (14,988 )
Accumulated other comprehensive income
    216       100       316  
Total Swisher Hygiene Inc. stockholders’ equity
    215,728       (2,470 )     213,258  
Non-controlling interest
    104       -       104  
Total stockholders' equity
    215,832       (2,470 )     213,362  
Total liabilities and stockholders' equity
  $ 306,420     $ 2,936     $ 309,356  
 
 
6

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except share and per share data)

   
Three Months Ended March 31, 2011
 
         
Restatement
       
   
As Reported
   
Adjustments
   
As Restated
 
Revenue
                 
Products
  $ 15,427     $ -     $ 15,427  
Services
    10,458       7       10,465  
Franchise and other
    1,511       (118 )     1,393  
Total revenue
    27,396       (111 )     27,285  
                         
Costs and expenses
                       
Cost of sales
    9,584       424       10,008  
Route expenses
    7,115       (16 )     7,099  
Selling, general, and administrative
    12,325       2,334       14,659  
Acquisition and merger expenses
    1,316       (52 )     1,264  
Depreciation and amortization
    2,708       187       2,895  
Debt prepayment penalty
    -       1,500       1,500  
Total costs and expenses
    33,048       4,377       37,425  
Loss from operations
    (5,652 )     (4,488 )     (10,140 )
                         
Other expense, net
    (2,273 )     19       (2,254 )
Net loss before income taxes
    (7,925 )     (4,469 )     (12,394 )
                         
Income tax benefit
    4,710       1,686       6,396  
Net loss
  $ (3,215 )   $ (2,783 )   $ (5,998 )
                         
Loss per share
                       
Basic and diluted
  $ (0.03 )   $ (0.02 )   $ (0.05 )
                         
Weighted-average common shares used in the
                 
computation of loss per share
                       
Basic and diluted
    122,780,115       -       122,780,115  
 
7

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
         
   
Three Months Ended March 31, 2011
 
         
Restatement
       
   
As Reported
   
Adjustments
   
As Restated
 
Net loss
  $ (3,215 )   $ (2,783 )   $ (5,998 )
                         
Cash used in operating activities
    (2,839 )     (1,873 )     (4,712 )
Cash used in investing activities
    (10,145 )     (36,896 )     (47,041 )
Cash provided by financing activities
    79,122       38,687       117,809  
                         
Net increase in cash and cash equivalents
    66,138       (82 )     66,056  
Cash and cash equivalents at the beginning of the period
    38,932       -       38,932  
                         
Cash and cash equivalents at the end of the period
  $ 105,070     $ (82 )   $ 104,988  
 
The significant portions of the Restatement Adjustments presented above are explained as follows:
 
 
Inventory – The net increase in inventory of $0.5 million primarily consists of entries to reclassify certain assets to inventory from property and equipment, net.
 
 
Property and equipment, net – The decrease in property and equipment, net of $1.2 million primarily consists of the reclassification of certain assets discussed above in inventory and a $0.4 million increase in accumulated depreciation and related depreciation expense to adjust errors in depreciation expense calculations.

 
Goodwill – The adjustment to decrease goodwill by $9.2 million consists of entries to adjust the opening balances of business combinations occurring during the period, which are separately discussed in the following section, Restatement of Net Assets Acquired.
 
 
Other intangibles, net – The adjustment to other intangibles, net of $12.9 million primarily consists of entries to adjust the opening balances of business combinations occurring during the period, which are separately discussed in the following section, Restatement of Net Assets Acquired.
 
 
Accounts payable and accrued expenses – The increase in accounts payable and accrued expenses of $1.0 million primarily consists of entries to accrue additional costs included in selling, general and administrative expenses of $0.5 million and $0.5 million of entries to adjust the opening balances of accrued expenses and contingent earnouts in business combinations occurring during the period which are separately discussed in the following section, Restatement of Net Assets Acquired.
 
 
Long-term obligations – The adjustment to decrease long-term obligations of $0.7 consists primarily of entries to correct opening balances of business combinations occurring during the period which are separately discussed in the following section, Restatement of Net Assets Acquired.
 
 
Deferred income tax liabilities – The increase in deferred income tax liabilities of $3.9 million consists of the difference between the book and tax basis of the separately indentifiable acquired intangible assets and the tax effect of the additional book loss related to this quarter.
 
 
Other long-term liabilities – The adjustment to other long-term liabilities of $1.1 million consists of entries to correct the opening balances of business combinations occurring during the period, which are separately discussed in the following section, Restatement of Net Assets Acquired.
 
 
8

 
 
Accumulated deficit and net loss – The decrease in accumulated deficit and net loss of $2.8 million comprises the net restatement entries made during the period.
 
 
Selling, general and administrative expenses – The increase in selling, general and administrative expenses of $2.3 million primarily consists of entries to accrue expenses of $1.8 million discussed in accounts payable and accrued expenses above, a $0.3 million increase in bad debt expense and a $0.2 million increase in professional fees originally recorded to additional paid-in capital.
 
 
Depreciation and amortization – The net increase in depreciation and amortization expense of $0.2 million consists of  a $0.5 million increase to adjust errors in depreciation expense calculations and a $0.3 million decrease resulting from the change in estimate of the remaining useful lives of certain property and equipment.
 
 
Loss on extinguishment of debt – The expense totaling $1.5 million reflects a penalty incurred and paid in conjunction with  prepayment of a credit facility in conjunction with the closing of the Company’s acquisition of Choice Environmental Services, Inc. which was previously treated by the Company as an element of purchase price recorded in goodwill.
 
 
Income tax benefit – The increase in income tax benefit of $1.7 milllion consists of the tax effect of the additional book loss related to this quarter.
 
 
Cash used in operating activities – The increase in cash used in  operating activities of $1.9 million primarily results from the increase of  $2.8 million in net loss.
 
 
Cash used in investing activities – The increase in cash used in investing activities of $36.9 million consists primarily of reclassifying $39.2 million of Choice debt paid off at closing from financing activities to cash paid on acquisitions, a $1.5 million decrease in the amount treated as acquisition purchase price as discussed above under loss on extinguishment of debt and a $0.5 million decrease to adjust the opening balances from business combinations occurring during the period, which is separately discussed in the following section, Restatement of Net Assets Acquired.
 
 
Cash used in financing activities – The increase in cash provided by financing activities of $38.7 million consists primarily of reclassifying $39.2 million of Choice debt paid off at closing from financing activities to cash paid on acquisitions in investing activities and $0.3 million of adjustments to proceeds received on lines of credit.
 
Restatement of Net Assets Acquired
 
As referenced in the explanations above, significant balance sheet changes resulted from Restatement Adjustments to the original fair value of assets acquired and liabilities assumed in business combinations completed during the three month period ended March 31, 2011. These adjustments, which consist primarily of increases in intangible assets and deferred income tax liabilities and decreases to goodwill, reflect a final assessment completed in connection with the Audit and Review Process and included valuation analyses prepared by the valuation groups of two nationally recognized public accounting firms. Restatement Adjustments for the acquisition of Choice and all other acquisitions are shown separately as follows:

Choice Acquisition
       
Restatement
       
Net assets acquired:
 
As Reported
   
Adjustments
   
As Restated
 
Cash and cash equivalents
  $ 341     $ (82 )   $ 259  
Accounts receivable
    6,096       329       6,425  
Inventory
    151       -       151  
Property and equipment
    29,618       (135 )     29,483  
Intangible assets
    30,721       11,579       42,300  
Other assets
    2,234       (5 )     2,229  
Accounts payable and accrued expenses
    (6,221 )     (1,358 )     (7,579 )
Long-term obligations
    (3,524 )     1,015       (2,509 )
Deferred income tax liabilities
    (12,002 )     (4,744 )     (16,746 )
Total net assets acquired
    47,414       6,599       54,013  
Goodwill
    49,862       (8,099 )     41,763  
                         
Total purchase price - Choice Acquisition
  $ 97,276     $ (1,500 )   $ 95,776  
                         
 
9

 
The significant portions of the Restatement of Net Assets Acquired - Choice are explained as follows:

 
Other intangibles The increase in other intangibles of $11.6 million consists of entries to record the estimated fair value of trademarks and permits of $9.3 million, to increase the estimated fair value of non-compete agreements by $3.7 million and to reduce the estimated fair value of customer contracts and relationships by $1.4 million. These entries, on a net basis, reduce the amount of recorded goodwill.

 
Accounts payable and accrued expenses – The increase of accounts payable and accrued expenses of $1.4 million is due to a $0.4 million increase to adjust the fair market value of the opening balances for unfavorable contracts and a $1.0 million increase primarily to reflect the accrual of pre-acquisition liabilities.

 
Long-term obligations – The net decrease in long-term obligations is a result of the reclassification of certain capital leases to operating leases.

 
Deferred income tax liabilities – The increase in deferred income tax liabilities of $4.7 million and a corresponding increase to goodwill is to record deferred income tax liabilities related to the tax effect of the difference between the book and tax basis of the separately identifiable acquired intangible assets, which were not previously valued, as discussed in other intangibles.

 
Goodwill – The net decrease in goodwill of $8.1 million primarily consists of the net increase of $6.6 million in total net assets acquired as detailed above, and a $1.5 million reduction in goodwill resulting in the recharacterization of the penalty paid by Choice as a loss on extinguishment of debt as described in the Restatement Adjustments section.

All Other Acquisitions
       
Restatement
       
   
As Reported
   
Adjustments
   
As Restated
 
Number of businesses acquired
    13             13  
                       
Net assets acquired:
                     
Accounts receivable
  $ 654     $ (70 )   $ 584  
Inventory
    457       -       457  
Property and equipment
    862       -       862  
Other intangibles
    6,778       1,264       8,042  
Accounts payable and accrued expenses
    (527 )     -       (527 )
Deferred income tax liabilities
    -       (910 )     (910 )
Total net assets acquired
    8,224       284       8,508  
Goodwill
    8,273       (1,124 )     7,149  
                         
Total purchase price - All Other Acquisitions
  $ 16,497     $ (840 )   $ 15,657  
                         
 
10

 
The significant portions of the Restatement of Net Assets Acquired – All Other Acquisitions, are explained as follows:
 
Other intangibles – The increase in other intangibles of $1.3 million primarily consists of entries to increase the value assigned to customer contracts and relationships.

Deferred income tax liabilities – The increase in deferred income tax liabilities of $0.9 million and a corresponding increase to goodwill is to record deferred income tax liabilities related to the tax effect of the difference between the book and tax basis of the separately identifiable acquired intangible assets, which were not previously reported, as discussed in other intangibles.

Goodwill – The net decrease in goodwill of $1.1 million consists of a $0.3 million increase in total net assets acquired and a reduction in the purchase price due to changes in the calculated fair market value of contingent liabilities resulting from acquisitions, the purchase price on acquisitions decreased by $0.8 million.


NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation and Principles of Consolidation
 
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission ("SEC") and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company's Condensed Consolidated Financial Statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition, results of operations, and cash flows for the periods presented. The information at December 31, 2010 in the Company's Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 31, 2011. The Company's 2010 Annual Report on Form 10-K, together with the information included in such report, is referred to in this quarterly report as the "2010 Annual Report." This quarterly report should be read in conjunction with the 2010 Annual Report.
 
All material intercompany balances and transactions have been eliminated in consolidation. Certain adjustments have been made to conform prior periods to the current year presentation.
 
Tabular information, other than share and per share data, is presented in thousands of dollars.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.
 
The Company's significant accounting policies are discussed in Note 2 of the Notes to Consolidated Financial Statements in our 2010 Annual Report. Any significant changes to those policies or new significant policies are described below.
 
 
11

 
Change in Estimate
 
The Company continues to accumulate and analyze data regarding the operating performance of certain assets and their economic life.  This analysis indicated that  these assets will continue to be used in the business for different periods than originally anticipated. As a result, the Company revised the estimated useful lives of certain property and equipment as follows:
 
   
Useful Life in Months
 
   
Previous
   
Revised
 
Linen
  36     24  
Dust control
  3     36  
Dish machines
  60     84  
Dispensers
 
24 to 36
   
24 to 60
 
Mops and bar towels
 
3 to 36
   
expensed
 
Vehicles
  36     60  
Office furniture and fixtures
  36     60  
 
The change in the useful life for these assets reflects the Company's current estimate of future periods to benefit. The effect of this change in estimate for the three months ended December 31, 2011 was a reduction of depreciation expense of $0.3 million. Had this change taken place in 2010, depreciation expense would have decreased by $0.2 million.
 
Acquisition and merger expenses
 
Acquisition and merger expenses include costs directly related to the acquisition of our four franchisees and ten independent businesses during the three months ended March 31, 2011, and costs directly related to the merger with CoolBrands International, Inc. as discussed in Note 1, "Business Description" of the Notes to Consolidated Financial Statements in our 2010 Annual Report. These costs include third party due diligence, legal, accounting and professional service expenses.
 
Segments
 
On March 1, 2011, the Company completed its acquisition of Choice, a Florida based company that provides a complete range of solid waste and recycling collection, transportation, processing and disposal services. As a result of the acquisition of Choice, the Company now has two segments: 1) Hygiene and 2) Waste. The Company's Hygiene segment provides commercial hygiene services and products throughout much of the United States and operates a worldwide franchise and license system to provide the same products and services in markets where Company-owned operations do not exist. The Company's Waste segment consists of the operations of Choice and will include future acquisitions of solid waste collection businesses. Prior to the acquisition of Choice, the Company managed, allocated resources, and reported in one segment, the Hygiene segment. See Note 14, "Segments."
 
The Company sold its Waste segment during the fourth quarter of 2012 as more fully described in Note 16, "Subsequent Events."
 
Adoption of Newly Issued Accounting Pronouncements
 
Revenue Recognition: In October 2009, the FASB issued new standards for multiple-deliverable revenue arrangements. These new standards affect the determination of when individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. In addition, these new standards modify the manner in which the transaction consideration is allocated across separately identified deliverables, eliminate the use of the residual value method of allocating arrangement consideration and require expanded disclosure. These new standards became effective for multiple-element arrangements entered into or materially modified on or after January 1, 2011. Earlier application was permitted with required transition disclosures based on the period of adoption. We adopted these standards for multiple-element arrangements entered into or materially modified on or after January 1, 2011. The adoption of this accounting standard did not have a material impact on the Company's Condensed Consolidated Financial Statements.
 
 
12

 
Goodwill: In December 2010, the FASB issued new standards defining when step two of the goodwill impairment test for reporting units with zero or negative carrying amounts should be performed and modifies step one of the goodwill impairment test for reporting units with zero or negative carrying amounts. For reporting units with zero or negative carrying amounts, an entity is required to perform step two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The standards are effective for fiscal years and interim periods within those years, beginning after December 15, 2010 and were effective for the Company on January 1, 2011. The adoption of this accounting standard did not have a material impact on the Company's Condensed Consolidated Financial Statements.
 
Business Combinations: In December 2010, the FASB issued new standards that clarify that if comparative financial statements are presented the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The standards are effective prospectively for material (either on an individual or aggregate basis) business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company has included the required disclosures in Note 4, "Acquisitions".
 
NOTE 4 — ACQUISITIONS
 
Choice Acquisition
 
On February 13, 2011, we entered into an Agreement and Plan of Merger (the "Choice Agreement") by and among Swisher Hygiene, Swsh Merger Sub, Inc., a Florida corporation and wholly-owned subsidiary of Swisher Hygiene, Choice, and other parties, as set forth in the Choice Agreement. The Choice Agreement provided for the acquisition of Choice by Swisher Hygiene by way of merger.
 
In connection with the merger with Choice, on February 23, 2011, we entered into an agency agreement, which the agents agreed to market, on a best efforts basis 12,262,500 subscription receipts ("Subscription Receipts") at a price of $4.80 per Subscription Receipt for gross proceeds of up to $58.9 million. Each Subscription Receipt entitled the holder to acquire one share of our common stock, without payment of any additional consideration, upon completion of our acquisition of Choice.
 
On March 1, 2011, we closed the acquisition of Choice and issued 8,281,920 shares of our common stock to the former shareholders of Choice, assumed $1.7 million of debt, and paid off $39.2 million of Choice debt.In paying the balance on this Choice debt, we incurred a prepayment penalty of $1.5 million which is included in loss on extinguishment of debt in the Condensed Consolidated Statement of Operations. Certain shareholders of Choice received $5.7 million in cash for warrants to purchase an additional 918,076 shares of common stock at an exercise price of $6.21, which expired on March 31, 2011 and were not exercised.
 
On March 1, 2011, in connection with the closing of the acquisition of Choice, the 12,262,500 Subscription Receipts were exchanged for 12,262,500 shares of our common stock. We agreed to use commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock underlying the Subscription Receipts. If the registration statement was not filed or declared effective within specified time periods, or if the registration statement had ceased to be effective for a period of time exceeding certain grace periods, between the date such shares of common stock were issued and November 10, 2011, the initial subscribers of Subscription Receipts would have been entitled to receive an additional 0.1 share of common stock for each share of common stock underlying Subscription Receipts held by any such initial subscriber at the time such grace period lapsed. On April 21, 2011 the SEC declared effective a resale registration statement relating to the 8,291,920 shares issued to the former shareholders of Choice and the 12,262,500 shares issued in connection with the private placement. The registration statement, including post-effective amendments to the registration statement, remained effective through April 12, 2012. As a result of not timely filing our Annual Report on Form 10-K for the year ended December 31, 2011, the registration statements relating to shares issued in exchange for the Subscription Receipts is not effective.
 
Choice has been in business since 2004 and serves more than 150,000 residential and 7,500 commercial customers in the Southern and Central Florida regions through its 320 employees and over 150 collection vehicles by offering a complete range of solid waste and recycling collection, transportation, processing and disposal services. Choice operates six hauling operations and three transfer and materials recovery facilities.
 
13

 
The following table presents the purchase price consideration as of March 1, 2011:
 
   
As Restated
 
Issuance of shares at a price of $5.89 per share
  $ 48,780  
Debt
    1,722  
Cash paid
    45,274  
Total purchase price consideration
  $ 95,776  
The following table summarizes the allocation of the purchase price, after considering the Restatement Adjustments, based on the fair value of the acquired assets and assumed liabilities of Choice as of March 1, 2011:
 
Net assets acquired:
 
As Restated
 
Cash and cash equivalents
  $ 259  
Accounts receivable
    6,425  
Inventory
    151  
Property and equipment
    29,483  
Intangible assets
    42,300  
Deferred income tax assets and other assets
    2,229  
Accounts payable and accrued expenses
    (7,579 )
Long-term obligations
    (2,509 )
Deferred income tax liabilities
    (16,746 )
Total net assets acquired
    54,013  
Goodwill
    41,763  
Total purchase price
  $ 95,776  
 
Other assets include $0.7 million of notes receivable from Choice shareholders. In addition, the Company's Condensed Consolidated Statement of Operations for the three months ended March 31, 2011 includes $5.8 million of revenue and $0.4 million of net loss before income taxes from Choice operations.
 
 
14

 
The following supplemental pro forma information presents the financial results as if the acquisition of Choice had occurred on January 1, 2010 for the three months ended March 31, 2011 and 2010. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition of Choice been completed on January 1, 2010 nor are they indicative of any future results:

             
   
Three Months Ended March 31,
 
   
2011
    2010  
Supplemental Pro Forma Information:
 
(As Restated)
   
 
 
Revenue
  $ 38,893     $ 27,177  
                 
Loss from operations
    (8,318 )     (2,381 )
                 
Loss per share
               
Basic and diluted
  $ (0.03 )   $ (0.03 )
                 
                 
Weighted-average common shares used in the
               
computation of loss per share
               
Basic and diluted
    136,476,395       78,374,050  
 
Pro forma adjustments include adjustments for (a) additional amortization related to the acquired identifiable intangibles; (b) additional depreciation as a result of an adjustment to the fair value of the property and equipment acquired; (c) a reduction of rent expense, offset by an increase for depreciation for leased properties with related parties treated as capital leases in connection with the acquisition, and (d) a reduction for interest expense and amortization of debt discounts and financing costs for debt that was paid off as part of the acquisition, offset by interest expense related to capital leases entered into in connection with the acquisition.  The proforma adjustments also reflect a $1.5 million loss on the extinguishment of debt in 2010, which is included in the Company’s Condensed Consolidated Statement of Operations in 2011.

The Company sold its Waste segment, which consisted principally of Choice, during the fourth quarter of 2012, as more fully described in Note 16, "Subsequent Events".
 
Other Acquisitions
 
During the three months ended March 31, 2011, the Company acquired four of its franchisees and nine independent businesses, in addition to the acquisition of Choice. The results of operations of these acquisitions have been included in the Company's Condensed Consolidated Statement of Operations since their respective acquisition dates. None of these acquisitions were significant to the Company's consolidated financial results and therefore, supplemental pro forma financial information is not presented.
 
The following table summarizes the allocation of the purchase price of these acquisitions, after considering the Restatement Adjustments, based on the fair value of the acquired assets and assumed liabilities:
 
   
As Restated
 
Number of businesses acquired
    13  
         
Net assets acquired:
       
Accounts receivable
  $ 584  
Inventory
    457  
Property and equipment
    862  
Other intangibles
    8,042  
Accounts payable and accrued expenses
    (527 )
Deferred income tax liabilities
    (910 )
Total net assets acquired
    8,508  
Goodwill
    7,149  
         
Total purchase price
    15,657  
Less: debt assumed
    (8,599 )
Less: issuance of shares
    (1,943 )
Less: earn-outs
    (350 )
         
Cash Paid
  $ 4,765  
 
Contingent consideration is payable to the former owners of our acquired businesses and consists of earn-out obligations which are based on the achievement of contractually negotiated levels of performance by certain of our acquired businesses and are payable in cash quarterly for three years ending March 31, 2014. These contingent earnouts are recorded at its fair market value as of the acquisition date.  There are no continuing employment obligations associated with any of the earnouts and they have therefore been treated as acquisition consideration.  See Note 16, "Subsequent Events" for additional acquisitions subsequent to March 31, 2011.
 
 
15

 
NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill and other intangible assets have been recognized in connection with the acquisitions described in Note 4, "Acquisitions" and substantially all of the balance is expected to be fully deductible for income tax purposes, except for goodwill related to the acquisition of Choice, which was a stock acquisition. Changes in the carrying amount of goodwill and other intangibles for each of the Company's segments during the three months ended March 31, 2011 were as follows:
 
   
Hygiene
   
Waste
 
   
(As Restated)
   
(As Restated)
 
Goodwill
           
Balance — December 31, 2010
           
Gross goodwill
  $ 30,530     $ -  
Accumulated impairment losses
    (870 )     -  
                 
Total  goodwill
    29,660       -  
                 
Goodwill acquired
    7,149       41,763  
Foreign exchange translation
    84       -  
                 
Balance — March 31, 2011
               
Gross goodwill
    37,763       41,763  
Accumulated impairment losses
    (870 )     -  
                 
Total goodwill
  $ 36,893     $ 41,763  
                 
Customer Contracts and Relationships
               
Balance — December 31, 2010
  $ 5,780     $ -  
Customers contracts and relationships acquired
    6,819       26,450  
Amortization
    (537 )     (255 )
Foreign exchange translation
    75       -  
                 
Balance — March 31, 2011
  $ 12,137     $ 26,195  
                 
Non-compete Agreements
               
Balance — December 31, 2010
  $ 1,889     $ -  
New non-compete agreements
    1,193       6,550  
Amortization
    (204 )     (140 )
Foreign exchange translation
    21       -  
                 
Balance — March 31, 2011
  $ 2,899     $ 6,410  
                 
Trademarks and Tradenames
               
Balance — December 31, 2010
  $ -     $ -  
Trademarks acquired
    30       9,300  
Amortization
    -       -  
                 
Balance — March 31, 2011
  $ 30     $ 9,300  
 
16

 
Hygiene Segment
 
The fair value of the customer relationships and contracts acquired is based on future discounted cash flows expected to be generated from those customers. These customer relationships and contracts will be amortized on a straight-line basis over five to ten years, which is primarily based on historical customer attrition rates and lengths of contracts. The fair value of the non-compete agreements will be amortized on a straight-line basis over the length of the agreements, typically not exceeding five years.  The fair value of formulas are amortized on a straight-line basis over twenty years.  Trademarks and tradenames are generally indefinite lived intangibles with no amortization.  In instances where there is a finite life remaining on a particular trademark or tradename, the Company amortizes them on a straight-line basis over this period.
 
Waste Segment
 
The fair value of the customer relationships and contracts acquired is based on future discounted cash flows expected to be generated from contracts with municipalities and customers. These customer relationships will be amortized on a straight-line basis over seven years, which is the weighted average of the estimated life of the customers acquired. Contracts will be amortized on a straight-line basis over the remaining life of the contracts including any appropriate renewal periods.  The fair value of the non-compete agreements will be amortized on a straight-line basis over the length of the agreements, typically not exceeding five years.  Trademarks, tradenames and permits are considered to be indefinite lived intangibles and therefore no amortization expense has been recorded.
 
NOTE 6 — STOCKHOLDERS’ EQUITY
 
Changes in stockholders’ equity for the three months ended March 31, 2011 consisted of the following:
 
   
As Restated
 
Balance at December 31, 2010
  $ 46,028  
Issuance of shares in connection with Choice acquisition
    48,780  
Issuance of shares in connection with private placements
    116,070  
Issuance of shares in connection with other acquisitions
       
and purchases of property and equipment
    2,144  
Conversion of convertible promissory note payable
    5,077  
Stock based compensation
    802  
Exercise of stock options
    217  
Foreign currency translation
    242  
Net loss
    (5,998 )
Balance at March 31, 2011
  $ 213,362  
 
Choice
 
As part of the purchase price of Choice we issued 8,281,920 shares of our common stock to the previous shareholders of Choice. See Note 4, "Acquisitions."
 
Private Placements
 
As discussed in Note 4, on March 1, 2011, in connection with the closing of the Choice acquisition, the 12,262,500 Subscription Receipts were exchanged for 12,262,500 shares of our common stock. As part of this transaction, we received cash of $56,253,791, net of issuance costs paid in cash of approximately $160,000.
 
On March 22, 2011, we entered into a series of arm's length securities purchase agreements to sell 12,000,000 shares of our common stock at a price of $5.00 per share, for net proceeds of $59,816,299 to certain funds of a global financial institution (the "March Private Placement"). On March 23, 2011, we closed the March Private Placement and issued 12,000,000 shares of our common stock. Pursuant to the securities purchase agreements, the shares of common stock issued in the March Private Placement could not be transferred on or before June 24, 2011 without our consent. We agreed to use our commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock sold in the March Private Placement. If the registration statement was not filed or declared effective within specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding a sixty day grace period, the investors will be entitled to receive monthly liquidated damages in cash equal to one percent of the original offering price for each share purchased in the private placement that at such time remain subject to resale restrictions, with an interest rate of one percent per month accruing daily for liquidated damages not paid in full within ten business days.  On April 21, 2011, the SEC declared effective a resale registration statement relating to the 12,000,000 shares issued in the March Private Placement. The registration statement, including post-effective amendments to the registration statement, remained effective through April 12, 2012.  As a result of not timely filing our Annual Report on Form 10-K for the year ended December 31, 2011, the registration statement relating to shares issued in the March Private Placement is not effective, and as such we may be subject to liability under the penalty provision.
 
See Note 16 – “Subsequent Events” for discussion of the April  Private Placement.
 
 
17

 
Acquisitions and Asset Purchases
 
We issued a total of 325,386 shares of our common stock in connection with certain acquisitions of franchisees and businesses during the three months ended March 31, 2011. Our stock price was at a weighted-average price of $5.97 at the time these shares were issued. In addition, during the three months ended March 31, 2011, we issued 32,751 shares at a fair value of $6.15 for purchases of property and equipment.
 
Stock Based Compensation
 
Stock based compensation is the result of the recognition of the fair value of share based compensation on the date of grant over the service period for which the awards are expected to vest. In addition 285,000 options were exercised at a weighted-average exercise price of $0.76 during the three months ended March 31, 2011.
 
Convertible Promissory Note
 
In addition, during the three months ended March 31, 2011, a $5.0 million, 6% convertible promissory note issued in November 2010 as part of the consideration paid for an acquisition was fully converted to 1,312,864 shares of our common stock.  At the conversion date, the note was adjusted to fair value resulting in $2.0 million of expense, which is recorded in other expense on the Condensed Consolidated Statement of Income.
 
The Company sold its Waste segment, which consisted principally of Choice, during the fourth quarter of 2012, as more fully described in Note 16, "Subsequent Events".
 
18

 
NOTE 7 — LONG-TERM DEBT AND OBLIGATIONS
 
Long-term obligations consist of the following as of March 31, 2011 and December 31, 2010:
 
   
March 31, 2011
   
December 31,
 
   
(As Restated)
   
2010
 
Line of credit agreement dated March 2011 and matures in July 2013,
       
interest rate of 3.2% at March 31, 2011.
  $ 27,850     $ -  
Line of credit agreement dated March 2008. Interest payable
               
monthly at one month LIBOR plus 2.85% at December 31, 2010,
               
interest rate of 3.11% at December 31, 2010.
    -       9,947  
Line of credit agreement dated June 2008. Interest payable
               
monthly at one month LIBOR plus 1.50% at December 31, 2010,
               
interest rate of 1.76% at December 31, 2011.
    -       15,000  
Acquisition notes payables
    10,792       7,891  
Capitalized lease obligations with related parties
    1,040       -  
Capitalized lease obligations
    784       550  
Notes payable under Master Loan and Security Agreement, due in
               
monthly installments and maturing in 2012. Interest is payable
               
monthly at a weighted-average interest rate of 8% at March 31,
               
2011 and December 31, 2010.
    104       249  
Convertible promissory notes:
               
6% Note due June 30, 2011
    -       5,000  
4% Notes at various dates through December 15, 2011
    16,056       5,771  
Total debt and obligations
    56,626       44,408  
Amounts due within one year
    (19,749 )     (13,379 )
                 
Long-term debt and obligations
  $ 36,877     $ 31,029  
 
Revolving Credit Facilities
 
In March 2011, we entered into a $100.0 million senior secured revolving credit facility (the "credit facility"). Under the credit facility, the Company has an initial borrowing availability of $32.5 million, which will increase to the fully committed $100.0 million upon delivery of our unaudited quarterly financial statements for the quarter ended March 31, 2011 and satisfaction of certain financial covenants regarding leverage and coverage ratios and a minimum liquidity requirement, which requirements we have met as of March 31, 2011.
 
Borrowings under the credit facility are secured by a first priority lien on substantially all of our existing and hereafter acquired assets, including $25.0 million of cash on borrowings in excess of $75.0 million. Furthermore, borrowings under the facility are guaranteed by all of our domestic subsidiaries and secured by substantially all the assets and stock of our domestic subsidiaries and substantially all of the stock of our foreign subsidiaries. Interest on borrowings under the credit facility will typically accrue at London Interbank Offered Rate ("LIBOR") plus 2.5% to 4.0%, depending on the ratio of senior debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") (as such term is defined in the new credit facility, which includes specified adjustments and allowances authorized by the lender, as provided for in such definition). We also have the option to request swingline loans and borrowings using a base rate. Interest is payable monthly or quarterly on all outstanding borrowings. The credit facility matures on July 31, 2013.
 
Borrowings and availability under the new credit facility are subject to compliance with financial covenants, including achieving specified consolidated EBITDA levels, which will depend on the success of our acquisition strategy, and maintaining leverage and coverage ratios and a minimum liquidity requirement. The consolidated EBITDA covenant, the leverage and coverage ratios, and the minimum liquidity requirements should not be considered indicative of the Company's expectations regarding future performance. The credit facility also places restrictions on our ability to incur additional indebtedness, make certain acquisitions, create liens or other encumbrances, sell or otherwise dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. Failure to achieve or maintain the financial covenants in the credit facility or failure to comply with one or more of the operational covenants could adversely affect our ability to borrow monies and could result in a default under the credit facility. The credit facility is subject to other standard default provisions.
 
 
19

 
The credit facility replaced our aggregated $25.0 million credit facilities, which are discussed in the 2010 Annual Report.
 
See Note 16, "Subsequent Events" which discusses subsequent amendments to the credit facility as well as the payoff of the credit facility in conjunction with the sale of the Company's Waste segment in the fourth quarter of 2012.
 
Choice Capital Lease Obligations with Related Parties
 
In connection with the acquisition of Choice, we entered into capital leases that have initial terms of five or ten years with companies owned by shareholders of Choice, to finance the cost of leasing office buildings and properties, including warehouses. The fair value of these leased properties of $1.0 million is included in property and equipment and will be depreciated over the term of the respective leases.
 
The Company sold its Waste segment, which consists principally of Choice, during the fourth quarter of 2012, as more fully described in Note 16, "Subsequent Events" and in connection therewith, transferred all remaining capital lease obligations to the buyers.
 
Convertible Notes
 
In February 2011, the 6% convertible promissory note of $5.0 million due on June 30, 2011 that was issued in November 2010 as part of consideration paid for an acquisition was converted into 1,312,864 of the Company's common shares. Since the convertible note was issued as part of a business combination, the note was recorded at fair value of $6.4 million on the date of issuance including $5.2 million recorded as a current liability and $1.2 million recorded as additional paid-in capital reflecting the promissory note's beneficial conversion feature. As of December 31, 2010, the net carrying amount of this promissory note was $6.4 million ($6.3 million principal and conversion feature and $0.1 million unamortized premium).
 
In addition during 2010, the Company issued convertible promissory notes with an aggregate principal value of $4,746,480. The notes have a 4% interest rate, mature at various times up to September 30, 2011 and are convertible into shares of our common stock at conversion rates from $3.88 to $4.18. The holder may convert the principal and interest into a variable number of the Company's common stock at any time following both (i) conditional approval by the Toronto Stock Exchange ("TSX") of the listing of the shares of Company's common shares issuable upon conversion of each note and (ii) the date that the Company's Registration Statement on Form S-1 for the resale of the Company's common stock is declared effective by the SEC, but not later than the maturity date of each note.
 
During the three months ended March 2011 and in connection with certain acquisitions, the Company issued convertible promissory notes with an aggregate principal value of $7.1 million. The notes have a 4% interest rate and are convertible into a maximum aggregate of 3,666,204 shares of our common stock from $4.82 to $5.68. The holder may convert the principal and interest into a variable number of the Company's common stock at any time following both (i) conditional approval by the TSX of the listing of the shares of Company's common shares issuable upon conversion of each note and (ii) the date that the Company's Registration Statement on Form S-1 for the resale of the Company's common stock is declared effective by the SEC but not later than the maturity date of each note.
 
NOTE 8 — FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
 
The Company determines the fair value of certain assets and liabilities based on assumptions that market participants would use in pricing the assets or liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or the "exit price." The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and gives precedence to observable inputs in determining fair value. The following levels were established for each input:
 
Level 1: "Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets."
 
Level 2: "Include other inputs that are observable for the asset or liability either directly or indirectly in the marketplace."
 
Level 3: "Unobservable inputs for the asset or liability."
 
 
20

 
The above convertible promissory notes that are convertible into a variable number of shares of the Company's common stock were recorded at fair value on the date of issuance and subsequently at each reporting period. The fair value of these convertible promissory notes was based primarily on a Black-Scholes pricing model. The significant management assumptions and estimates used in determining the fair value included the expected term and volatility of our common stock. The expected volatility was based on an analysis of industry peer's historical stock price over the term of the notes as the Company did not have sufficient history of its own stock volatility, which was estimated at approximately 25%. Subsequent changes in the fair value of these instruments were recorded in other expense, net on the Condensed Consolidated Statements of Operations. Future movement in the market price of our stock could significantly change the fair value of these instruments and impact our earnings.
 
The convertible promissory notes that are convertible into a variable number of the Company's shares issued during 2010 and 2011 are Level 3 financial instruments since they are not traded on an active market and there are unobservable inputs, such as expected volatility used to determine the fair value of these instruments. The following table is a reconciliation of changes in carrying value of these notes including changes in fair value for notes that are convertible into a variable number of the Company's common shares for the three months ended March 31, 2011:
 
   
As Restated
 
Balance at December 31, 2010
  $ 5,771  
Issuance of convertible promissory notes
    8,324  
Unrealized losses included in earnings
    1,961  
Balance at March 31, 2011
  $ 16,056  
 
Financial Instruments
 
The Company's financial instruments, which may expose the Company to concentrations of credit risk, include cash and cash equivalents, account receivables, accounts payable, and debt. Cash and cash equivalents are maintained at financial institutions. The carrying amounts of cash and the current portion of accounts receivable and accounts payable approximate fair value due to the short maturity of these instruments. The fair value of the Company's debt is estimated based on the current borrowing rates available to the Company for bank loans with similar terms and maturities, and approximates the carrying value of these liabilities. In addition, the convertible promissory notes that are convertible into a variable number of the Company's common shares are recorded at fair value at each reporting period date.
 
NOTE 9 — OTHER EXPENSE, NET
 
Other expense, net consists of the following for the three months ended March 31, 2011 and 2010:
 
   
2011
       
   
(As Restated)
   
2010
 
Interest expense
  $ (344 )   $ (306 )
Net loss on debt related fair value measurements
    (1,961 )     -  
Foreign currency gain
    35       -  
Interest income
    16       15  
Total other expense, net
  $ (2,254 )   $ (291 )
 
NOTE 10 — COMPREHENSIVE LOSS
 
Comprehensive loss consists of the following for the three months ended March 31, 2011 and 2010:
 
   
2011
       
   
(As Restated)
   
2010
 
Net loss
  $ (5,998 )   $ (1,595 )
Foreign currency translation
    242       -  
Comprehensive loss
  $ (5,756 )   $ (1,595 )
 
21

 
NOTE 11 — SUPPLEMENTAL CASH FLOW INFORMATION
 
The following table includes supplemental cash flow information, including non-cash investing and financing activity for the three months ended March 31, 2011 and 2010.
 
   
2011
       
   
(As Restated)
   
2010
 
Cash paid for interest
  $ 284     $ 209  
                 
Cash received for interest
  $ 16     $ -  
Notes payable issued or assumed on acquisitions
  $ 10,321     $ -  
                 
Conversion of promissory note
  $ 5,077     $ -  
                 
Issuance of shares for other acquisitions and
               
property and equipment
  $ 2,144     $ -  
Debt and private placement issuance costs financed
  $ 283     $ -  
 
NOTE 12 — LOSS PER SHARE
 
Loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. The following were not included in the computation of diluted loss per share for the three months ended March 31, 2011 and 2010 as their inclusion would be antidilutive:
 
  
Warrants to purchase 5,500,000 shares of common stock at $0.50 per share were outstanding and expire in November 2011.
 
  
Stock options and restricted units to purchase 5,055,428 shares of common stock.
 
  
Convertible promissory notes that if-converted would result in 2,602,811 shares of common stock.
 
NOTE 13 — INCOME TAXES
 
As a result of the merger with CoolBrands International, Inc. on November 2, 2010, as discussed in Note 1, "Business Description" of the Notes to Consolidated Financial Statements in our 2010 Annual Report, the Company converted from a corporation taxed under the provisions of Subchapter S of the Internal Revenue Code to a tax-paying entity and accounts for income taxes under the asset and liability method. For the three months ended March 31, 2011, the Company has recorded an estimate for income taxes based on the Company's projected net income for the year ending December 31, 2011 and an effective income tax rate of 51.6%.  The amount of income tax expense recorded for the period is based on the full year’s net income.
 
In addition, during the three months ended March 31, 2011, the Company reversed the valuation allowance of $2.4 million recorded as of December 31, 2010 as a result of the Company's net deferred tax liability balance of $13.7 million at March 31, 2011. The majority of these deferred tax liabilities were recorded as part of the acquisition of Choice on March 1, 2011 as discussed in Note 4, "Acquisitions".
 
See Note 16, "Subsequent Events" for information concerning the sale of the Waste segment, which consists principally of Choice, and further discussion of the valuation allowance referred to above.
 
 
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NOTE 14 — SEGMENTS
 
On March 1, 2011, the Company completed its acquisition of Choice, a Florida based company that provides a complete range of solid waste and recycling collection, transportation, processing and disposal services. As a result of the acquisition of Choice, the Company now has two operating segments 1) Hygiene and 2) Waste. The Company's Hygiene operating segment primarily provides commercial hygiene services and products throughout much of the United States and operates a worldwide franchise and license system to provide the same products and services in markets where Company-owned operations do not exist. The Company's Waste segment primary consists of the operations of Choice and future acquisitions of solid waste collections acquisitions. Prior to the acquisition of Choice, the Company managed, allocated resources, and reported in one segment, Hygiene.
 
The following table presents financial information for each of the Company's reportable segments for the three months ended and as of March 31, 2011:
 
   
Hygiene
   
Waste
   
Total
 
   
(As Restated)
   
(As Restated)
   
(As Restated)
 
Revenue
  $ 21,475     $ 5,810     $ 27,285  
                         
Depreciation and amortization
  $ 2,122     $ 773     $ 2,895  
                         
Loss from operations
  $ (8,229 )   $ (1,911 )   $ (10,140 )
                         
Other (expense) income, net
  $ (2,260 )   $ 6     $ (2,254 )
                         
Net loss before income taxes
  $ (10,489 )   $ (1,905 )   $ (12,394 )
                         
Capital expenditures
  $ 2,372     $ 294     $ 2,606  
                         
Total assets
  $ 189,000     $ 120,356     $ 309,356  
                         
The Company sold its Waste segment during the fourth quarter of 2012 as more fully described in Note 16, "Subsequent Events."
 
NOTE 15 — COMMITMENTS AND CONTINGENCIES
 
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows.
 
In connection with a distribution agreement entered into in December 2010, the Company provided a guarantee that the distributor's operating cash flows associated with the agreement would not fall below certain agreed-to minimums, subject to certain pre-defined conditions, over the ten year term of the distribution agreement. If the distributor's annual operating cash flow does fall below the agreed-to annual minimums, the Company will reimburse the distributor for any such short fall up to a pre-designated amount. No value was assigned to the fair value of the guarantee at March 31, 2011 and December 31, 2010 based on a probability assessment of the projected cash flows. Management currently does not believe that it is probable that any amounts will be paid under this agreement and thus there is no amount accrued for the guarantee in the Condensed Consolidated Financial Statements. This liability would be considered a Level three financial instruments given the unobservable inputs used in the projected cash flow model. See Note 8, "Fair Value Measurements and Financial Instruments" for the fair value hierarchy.
 
NOTE 16 — SUBSEQUENT EVENTS
 
Private placement
 
On April 15, 2011, we entered into a series of arm's length securities purchase agreements to sell 9,857,143 shares of our common stock at a price of $7.70 per share, for aggregate proceeds of $75.9 million to certain funds of a global financial institution (the "April Private Placement"). On April 19, 2011, we closed the April Private Placement and issued 9,857,143 shares of our common stock.  Pursuant to the securities purchase agreements, the shares of common stock issued in the April Private Placement could not be transferred on or before June 24, 2011 without our consent.  We agreed to use commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock sold in the April Private Placement. If the registration statement was not filed or declared effective within the specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding a sixty day grace period, the investors will be, entitled to receive monthly liquidated damages in cash equal to one percent of the original offering price for each share purchased in the April Private Placement that at such time remain subject to resale restrictions with an interest rate of one percent per month accruing daily for liquidated damages not paid in full within ten business days after the date payable.  On August 12, 2011 the SEC declared effective a resale registration statement relating to the 9,857,143 shares issued in the April Private Placement. The registration statement, including post-effective amendments to the registration statement, remained effective through April 12, 2012.  As a result of not timely filing our Annual Report on Form 10-K for the year ended December 31, 2011, the registration statement relating to shares issued in the April Private Placement is not effective, and as such we may be subject to liability under the penalty provision.
 
 
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Acquisitions
 
Subsequent to March 31, 2011, the Company acquired several businesses. While the terms, price, and conditions of each of these acquisitions were negotiated individually, consideration to the sellers typically consists of a combination of cash and our common stock. Aggregate consideration paid for these acquired businesses was approximately $148.0 million consisting of approximately $99.2 million in cash and 7,309,000 shares of our common stock with a fair value of approximately $48.8 million.
 
These acquired businesses include the following acquisitions, which have an aggregate consideration of $52.8 million, consisting of $30.5 million in cash and 3,075,000 shares of our common stock with a fair value of $22.3 million:
 
  
ProClean of Arizona, Inc. (“ProClean”), an independent hygiene and chemical provider in the Southwest. ProClean has been in business since 1976 and serves over 4,000 commercial customers in Arizona, Southern California, Southern Nevada, New Mexico and West Texas through its more than 100 employees by offering a complete range of specialty chemicals and service programs to the foodservice and hospitality industries, including ware washing, general cleaning, laundry and housekeeping services.
 
  
Mt. Hood Solutions (“Mt. Hood”), an independent hygiene and chemical provider in the Northwest. Mt. Hood has been in business since 1902 and serves over 4,000 commercial and industrial customers in Oregon, Washington, Northern California, Idaho, Utah and Colorado through its more than 100 employees by offering a complete range of specialty chemicals and service programs to the foodservice, hospitality and healthcare industries, including ware washing, general cleaning, laundry and housekeeping services, as well as a line of products for manufacturing companies including industrial and water treatment products.
 
  
Lawson Sanitation, LLC (“Lawson”), a Miami-based solid waste services provider. Lawson has been in business since 2003 and serves commercial and multi-family commercial customers in South Florida by offering a complete range of solid waste and recycling collection, transportation, processing and disposal services.
 
Sale of Waste Segment
 
On November 15, 2012, the Company completed a stock sale of Choice and other acquired businesses that comprise the Waste segment, to Waste Services of Florida, Inc. for $123.3 million. The stock purchase agreement contains earn-out provisions that could provide additional sale proceeds to the Company of $1.8 million upon achievement of a predetermined revenue target and is also subject to customary purchase price adjustments, including revenue and EBITDA metrics. Ten percent of the purchase price is subject to a holdback and adjustment upon delivery of audited financial statements to the buyer.
 
As a result of the sale of Choice and all of its operations in the Waste segment, the Company operates in one business segment, Hygiene, effective with the filing of the 2012 Annual Report on Form 10-K.
 
In connection with the acquisition of Choice on March 1, 2011, the Company recorded deferred tax liabilities that allowed the Company to make a determination that the valuation allowance for the deferred tax asset $2.4 million recorded at December 31, 2010 was no longer necessary at March 31, 2011. Upon the sale of Choice in the fourth quarter of 2012 and with our history of operating losses, a valuation allowance may be necessary in the fourth quarter of 2012, or quarters prior to then.
 
 
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The following supplemental pro forma information presents the financial results of the Company as if the purchase of Choice, which comprised the Waste segment at that time, had not occurred on March 1, 2011. The information also includes a valuation allowance for the deferred tax asset described in the previous paragraph. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the purchase of Choice not occurred on March 1, 2011, nor is the pro forma information indicative of any future results:
 
   
Three Months Ended March 31,
 
   
2011
       
Supplemental Pro Forma Information:
 
(As Restated)
 
2010
 
Revenue
  $ 21,475     $ 14,729  
Loss from operations
    (8,544 )     (1,304 )
Loss per share
               
Basic and diluted
  $ (0.07 )   $ (0.03 )
                 
Weighted-average common shares used in the
 
computation of loss per share
         
Basic and diluted
    122,780,115       57,829,630  
                 
Revolving Credit Facility
 
During 2012, we amended our credit facility with Wells Fargo Bank, National Association on each of April 12, 2012, May 15, 2012, June 28, 2012, July 30, 2012, August 31, 2012, September 27, 2012, and October 31, 2012, in each case, primarily to extend the dates by which we were required to file our Form 10-K for the year ended December 31, 2011 and Forms 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 and to avoid potential defaults for not timely filing these reports.  In addition, the August 31, 2012 amendment reduced the Company’s maximum borrowing limit to $50.0 million, provided that the Company met certain borrowing base requirements.  The September 27, 2012 amendment further reduced the Company’s maximum borrowing limit to $25.0 million, provided that the Company met certain modified borrowing base requirements.  The October 31, 2012 amendment required the Company to place certain amounts in a collateral account under the sole control of the administrative agent to meet the Company’s unencumbered liquidity requirements.  In connection with the sale of our Waste segment on November 15, 2012, we paid off the credit facility, which resulted in the termination of the credit facility.
 
Conversion of convertible promissory notes
 
Subsequent to March 31, 2011, convertible promissory notes with an aggregate principal amount of $11.7 million and an aggregate fair value of $15.9 million in short term obligations on the Condensed Consolidated Balance Sheets as of March 31, 2011 were converted into 2.7 million shares of the Company’s common stock.
 
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis in conjunction with our unaudited Condensed Consolidated Financial Statements and the related notes thereto included in Item 1 of this Quarterly Report on Form 10-Q/A as well as our "Selected Financial Data" and our audited Consolidated Financial Statements and the related notes thereto included in Item 6 and Item 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2010 (the "2010 Form 10-K"). In addition to historical consolidated financial information, this discussion and analysis contains forward-looking statements that reflect our plans, estimates, and beliefs. Actual results could differ from these expectations as a result of certain risk factors, including those described under Item 1A, "Risk Factors," of our 2010 Form 10-K.
 
Restatement and Audit Committee Review