UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20249
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
FLEETCLEAN SYSTEMS INC.
(Name of Small Business Issuer in its Charter)
TEXAS TAX I.D. 76-0196431
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. BOX 727 HARDIN, TEXAS 77561
HWY 834 EAST .7 MILES (Zip Code)
(Address of principal executive offices)
(409) 298-9835
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- ------------------- ------------------------------
None None
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
<PAGE>
All references to Fleetclean Systems, Inc. common stock reflect a one for
203.991 forward common stock split in August 1996. All references to the
"company" refer to Fleetclean Systems, Inc.
PART I
The company has elected to follow Alternative 2 of Form 10-SB.
ITEM 6. DESCRIPTION OF BUSINESS
ORGANIZATION
The company was incorporated in Texas in 1986, under the name Eastex
Chemex Corporation, as a retail distributor of truck washing equipment and
chemicals to operators of large trucking fleets. In July 1990, the company
changed its name to Fleetclean Systems, Inc.
Until 1992, the company operated locally, in the Houston, Texas area.
Thereafter, sales efforts were directed to large national trucking companies. In
1994, the company acquired the assets and business accounts of Chemex
Southwestern Inc. and began to manufacture equipment and chemicals for retail
distribution. During 1994, the company opened a distribution warehouse in
Statesville, North Carolina. In January 1996, the company acquired the Kentucky
operations, including a distribution warehouse, and customer accounts of
Fleetcleaning Supply Company, Inc. In June 1998, the distribution warehouse was
moved to Lafayette, Indiana and subsequently to Warsaw, Indiana in June 1999. In
February 1999, the company acquired the assets and ongoing business accounts of
Tri-State Chemex Corp of Providence, Rhode Island. After this transaction, the
company has sales and service warehouses in Hardin, Texas; Warsaw, Indiana;
Statesville, North Carolina; and Providence, Rhode Island. All equipment is
manufactured in Texas, with chemical mixing facilities operating in Texas and
Rhode Island. Distribution and customer service is by company employees who
service specific geographic regions.
As of September 30, 1999, the company had a cash balance of $1,672, and a
working capital deficiency of $168,359. The company has received preliminary
approval of a $1,100,000 Rural Development Loan through Economic Development
Capital to be funded in January 2000 with which it intends to fund its ongoing
operations and refinance its liabilities. There is no assurance that the company
will receive final approval of this loan guaranty from the federal government.
Additionally, subsequent to September 30, 1999, the company has arranged for
$35,000 of long-term equipment financing and an additional $135,000 of
short-term financing that will be refinanced from proceeds of the loan. Of this
$135,000, Kenneth A. Phillips has loaned the company $100,000. If the company is
unable to close on this loan it will be required to curtail expansion, seek
other external financing, or otherwise bring cash flows into balance. The
company believes its current financial situation is due to its rapid growth,
which it believes is important to its ongoing success. The company believes it
can sustain its current operations if it discontinues all growth expenditures,
and uses all cash flows from operations to fund its current operations.
PRODUCTS AND SERVICES
HAND HELD HIGH-PRESSURE TRUCK WASHING SYSTEM
The company manufactures stainless steel pressure washing equipment for
hand washing of trucks. The chemicals are formulated for "two step" washing,
which allows the user to simply spray the chemical on the unit and rinse it off
for complete cleaning without brushing. The chemical run off is neutral and is
accepted in municipal waste water systems nationwide with no special permitting
required. The company knows of no federal regulations which restrict the
company's customers from discharging waste water into municipal sewer systems.
Each municipality has specific requirements for accepting industrial waste
water. There is no assurance that in the future federal or state governments
would not implement new regulations. The company offers several different types
of
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chemicals, depending on the surface of the truck and upon the level of cleaning
required.
The company believes its customer base is stable in that the company
provides washing equipment to it's customers "on loan" at no charge, in return
for the ongoing chemical business, provided the customer purchases a pre-set
amount of chemicals each month. Each customer that is provided the equipment
agrees to purchase a minimum of 200 gallons of chemicals exclusively from the
company, or agrees to pay a rental fee of $250. The current prices of chemicals
are approximately $2.60 to $7.00 per gallon. Company personnel install the
equipment at each customer's facility, and provide instruction and training. The
company believes customer turnover has been low due to the quality of the
products and the level of service provided on a regular monthly basis. Some
customers have been serviced continuously for ten years.
During 1999, the company has discontinued service to 16 customers. Of
these, the company took the initiative in nine cases to terminate service
because the chemical volume did not meet our requirements. The others terminated
for a variety of reasons, but the company has not been notified that any
termination was due to the failure of the product to perform. During 1999, the
company gained 15 new chemical customers whose chemical volume more than exceeds
the loss of business during this period. Historically, the company estimates
that the chemical business has had annual growth rate of 6% to 7%. The company
currently services 168 customers on a regular basis, which is an increase of 54
from the 1998 level. The majority of the increase in the number of customers
came as a result of the Tri-State Chemex acquisition, and several of these are
low volume chemical users, however the company can continue to serve these, as
they are physically located in close proximity to the Rhode Island warehouse,
and the company does not "provide" equipment for their use; they have purchased
equipment of their own and the company realizes maintenance revenue from these
small volume customers. Of the 168 customers currently served, 39 have been
regular customers for more than 5 years. The company is not dependent on a few
major customers for its revenues.
DRIVE THRU TRUCK WASHING SYSTEM
The company has also designed a drive thru truck wash system that washes a
tractor /trailer combination in approximately 90 seconds. Unlike the hand
washing systems, drive thru washing systems are not provided on loan, but are
sold at prices of $55,000 - 75,000. The system cleans without brushing by means
of two chemical spray arches and a rinse arch, each with separate pump systems,
a chemical mixing system, and a master control panel with appropriate controls
and sensors. The system initially dispenses a pre-soak solution, followed with a
detergent solution, which reacts with the pre-soak solution to finish cleaning.
Finally, the truck is rinsed, including an undercarriage rinse, with a rinse
pump dispensing water at a rate of approximately 230 gallons per minute. The
system can handle trucks up to 8 feet 6 inches wide and 13 feet 6 inches high.
To date, the company has sold six drive thru wash systems.
A drive thru truck wash is a mechanical and electronic system which is
sold to a customer, typically not a tank truck carrier, but a dry freight box
carrier to clean the exteriors of trucks and trailers. These systems are sold to
trucking companies which have sufficient number of units to require high volume
production washing. The systems, when sold, are installed at the customer's
maintenance facility, allowing them to clean their own tractor/trailer
combinations on a regular basis. The company sells maintenance and cleaning
chemicals on an ongoing basis to the owners of the drive thru truck wash
systems.
INTERNAL TANK CLEANING OPERATIONS
The company's business has grown primarily within the large truck
industry. As a result the company's management has become familiar with the
characteristics and needs of that industry, which prompted the company to enter
into "internal" tank cleaning in 1999. In March 1999, the company acquired on a
lease purchase contract, a truck terminal/tank wash facility in Hahnville,
Louisiana. After remodeling the facility at a cost of approximately $300,000,
the facility opened in August 1999.
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Internal tank cleaning is a necessary process in the functioning of
chemical and food tank truck and trailers. Most chemical or food tankers haul a
variety of products, though there are some unique situations where a trailer is
on a dedicated haul of one specific product. In every case where a trailer is
loading a product different from the previous load, it must be thoroughly
cleaned internally, and in some cases externally. This is done by taking the
trailer to a plant which is equipped with a steam boiler and high pressure
pumps, which are used through a spinner device to inject hot caustic or hot soap
or hot diesel in some cases at high pressure to clean the tank. Rinsing and
drying completes the process.
This internal tank cleaning facility is permitted by the Louisiana
Department of Environmental Quality, and currently holds an EPA permit as a
waste water generator, and an air quality permit from the state of Louisiana.
The company has completed its required permitting and expects no further fees or
permits. The company is subject overall to regulation by the DOT, EPA, and OSHA
and currently believes it has complied with all regulatory requirements. The
company as a whole is permitted by the DOT as a hazardous materials carrier.
These permits have been in place since 1993. The company meets all DOT
requirements and state requirements for operation of trucks interstate hauling
hazardous materials. Different states have different permitting requirements,
which are addressed state by state. The Hahnville facility is permitted by the
EPA as a waste generator, which is not hazardous. Additionally, the company has
acquired a Louisiana DEQ Air Quality Permit, and a boiler permit from the
Louisiana State Fire Marshall.
The company believes it has complied with all applicable environmental
regulations with respect to its operations. However, due to the nature of its
business, the company may become subject to future laws regulating the chemicals
used in its operations.
As a long-term objective the company intends to open additional tank
cleaning facilities. There are no specific plans at this time, nor has funding
been arranged for such expansion. Any new facilities would require EPA and state
permits. The development of new facilities would be limited by the ability to
obtain necessary permits in specific location, or as an alternative, acquisition
of existing facilities which have the needed permits.
The company does not employ any processes or operations which are limited
by availability of materials or suppliers, as all components of the company's
products are commercially available and can be purchased from a number of
sources. The uniqueness of the products marketed is in the formulation of the
chemicals to proprietary formulas, which are strictly controlled. All employees
sign a confidentiality and non-compete agreement, except the tank wash personnel
who have no access to secret information.
INTELLECTUAL PROPERTY
The company does not have a formal research and development division.
Company expenditures on research and development has been limited to contracting
with a research chemist for assistance with certain new chemical formulas, at a
total cost of $3,000 in the last two years.
The company regards intellectual property rights as essential to its
success, and relies extensively on trademark rights and confidentiality
agreements, between and amongst its partners, employees and others, to protect
its proprietary interests. The company is the proprietor of a service mark on
the Fleetclean Systems, Inc. mark. The service mark consists of an outline of
the United States with two large trailer trucks placed on top, one stating
"FLEETCLEAN" and the other stating "SYSTEMS, INC." There is no assurance that
the steps taken to protect the company's proprietary rights will be adequate, or
that third parties will not infringe or misappropriate its service marks or
similar proprietary rights. The company does not currently hold any patents on
its chemical formulas or on the components comprising its drive thru washing
system. If the company is unable to utilize any of the foregoing materials due
to intellectual property restraints, its business would be adversely affected.
MARKETING
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The company has not entered into extensive advertising programs, but has
grown through direct sales efforts, and referrals from satisfied customers. The
company currently services 155 customers in 24 states. Although the company
believes it competes in a fragmented market with few large competitors, there is
no assurance that the company will not in the future compete against larger
companies with greater financial resources.
EMPLOYEES
The company currently has 20 full-time employees and one part-time
employee. No employees are covered by a collective bargaining agreement.
Management considers relations with its employees to be satisfactory.
COMPETITION
Competition in the chemical distribution business is very fragmented, with
the bulk of the competition as locally owned family businesses. There are
currently 265 commercial tank cleaning facilities in the country as listed in
the March 1999 issue of "Modern Bulk Transporter." Of these, management
estimates 51 are limited to "food grade only," and another 48 are operated by
trucking firms primarily to service their own trucks, leaving only 166
facilities as independent full service commercial tank washes. Of the 166
independent facilities, 25 are owned and operated by Philip Services
Corporation.
Tank trailers are divided into three basic categories, dry bulk (flour,
plastic pellets, sand, etc.); liquid food trailers; and chemical trailers. For
obvious reasons of possible contamination, a food trailer would not normally be
used to haul chemicals, which in many cases would be hazardous. In some
applications certain types of food product trailers can be cleaned in a
general-purpose tank wash facility. However some food product trailers must be
cleaned in special "food grade" wash bays, which requires all stainless steel
equipment and fixtures. The Hahnville facility is a general-purpose chemical
tank wash and does not have a "food grade" bay as the company believes the local
market does not require such a facility. There are certain tank washes which
specialize in "food grade" cleaning only and would not be able to clean a
variety of chemical products without voiding their "food grade" designation.
The majority of the independent tank washes are small family owned
businesses. Some of these family owned businesses are being considered as
potential acquisition candidates with a view to developing a national chain.
However, at the present time, the company has no plans for such acquisitions.
The company believes many of these businesses use antiquated, inefficient
methods, and the company believes that an opportunity exists for it to become a
significant service provider nationwide by acquiring certain carefully selected
facilities, while at the same time building new modern facilities in key
markets. The company will require external financing to execute its acquisition
strategy. At this time, the company has no commitments for such financing, and
can provide no assurance that such financing will be available on favorable
terms, if at all.
PLAN OF OPERATIONS
On September 30, 1999 the company had a net cash balance of $1,672, and a
net working capital deficiency of $168,359 as compared with net working capital
of $18,401 on September 30, 1998. The working capital deficiency for 1999 is
attributable to increases in short term debt. The company intends to refinance
all current liabilities and certain long-term debt from the proceeds of a
twenty-three year Rural Development Loan of $1,100,000 at an interest rate of
prime plus two percent. The company received preliminary approval of the loan
from Economic Development Capital and its application is being processed with
the federal government in order to obtain a loan guaranty and the funding date
is to occur in January 2000. There is no assurance that the company will receive
final loan guaranty from the federal government. If the company is able to
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complete the loan transaction discussed above, it believes that it should be
able to continue its current operations for the foreseeable future if it
curtails its expansion.
Most of the company's growth in the chemical distribution business comes
by referrals from existing customers, or by existing customers expanding their
operations and asking the company to expand service to new locations. Management
believes that meeting these expansion opportunities is vital to the continued
growth and stability of the customer base. The company has never obtained
adequate outside capital to fund growth and expansion. The company can operate
on a sustained basis with current cash flow from operations, but any growth or
expansion must be funded from external sources in order to remain cash flow
positive. In order to continue to grow, the company has made a choice of slow
growth from within, financed by current operations, which have produced losses.
In the last quarter of 1998 and first quarter of 1999 the company raised a total
of $744,858 from sales of securities. A substantial portion was used to cover
legal and accounting expenses, and the balance was used to cover the cost of
acquiring Tri-State Chemex, Inc., and the tank wash facility in Hahnville, plus
some of the renovation cost at Hahnville. Growing internally with current
operating capital has kept the company in a very tight cash situation.
If the company is unable to close on the $1,100,000 loan it will be
required to curtail its expansion, seek other external financing, or otherwise
bring cash flows into balance. The company believes its current financial
situation is due to its rapid growth, which it believes is important to its
ongoing success, but which the company is unable to adequately finance
internally. The company believes it can sustain its current operations if it
discontinues all growth expenditures, and uses all cash flows from operations to
fund its current operations. If the company is unable to close the loan, it will
seek additional equity or debt financing in order to continue its growth.
However, there is no assurance that the company will be successful in obtaining
such financing on favorable terms, if at all.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table sets forth certain operating information regarding the
company for the nine and three month periods ended September 30, 1999 and 1998:
FOR THE NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
Revenues ................................ $ 780,449 $ 792,007
========= =========
Cost of Revenues ........................ 163,689 175,494
========= =========
Net losses .............................. $(255,248) $ (12,387)
========= =========
FOR THE THREE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
Revenues ................................ $ 238,374 $ 209,645
========= =========
Cost of Revenues ........................ 64,734 41,637
========= =========
Net losses .............................. $(248,768) $ (66,791)
========= =========
The following summary table presents comparative cash flows of the Company
for the nine month periods ended September 30, 1999 and 1998:
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
Net cash provided from operations ... $ 66,073 $ 57,825
Net cash used in investing activities $(448,589) $ (80,863)
Net cash provided by financing
activities .......................... $ 329,805 $ 23,479
Cash provided from operating activities for the nine months ended
September 30, 1999 was $66,073 as
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compared to $57,825 for the same period in 1998. The primary components of the
cash increase were a reduction in the cost of chemicals purchased and the
emphasis of higher gross profit sales products to tank washing facilities. Cash
used in investing activities for the nine months ended September 30, 1999 was
$448,589 as compared to $80,863 in the same period 1998. The increase is due
primarily to the acquisition of Tri-State Chemex, Inc. ($100,000) and equipment
purchased for the Hahnville Tank Wash ($243,429).
The increase of cash from financing activities was from a combination of
additional bank debt, financing of equipment, sale of common stock, and issuance
of convertible debt.
On September 30, 1999 the company had a net cash balance of $ 1,672, and a
net working capital of deficiency of $(168,359) as compared with net working
capital of $18,401 on September 30, 1998. The working capital deficiency for
1999 is attributable to increases in short term debt. The company intends to
refinance all current liabilities and certain long-term debt from the proceeds
of the $1,100,000 loan discussed above.
The increase in assets from $825,279 on September 30, 1998 to $2,024,784
on September 30, 1999 is principally due to the acquisition of the assets of
Tri-State Chemex, Inc, and the purchase of the Hahnville tank wash facility,
along with the equipment improvements at that facility. Transportation equipment
increased $102,118 due to the purchase of two commercial trucks in October 1998.
During 1999, the company financed its acquisitions through short-term bank
debt, long-term equipment financing, issuance of convertible debt, and a sixty
month lease purchase for the Louisiana tank wash facility. The tank wash
acquisition was accounted for as a $450,000 capital lease and, accordingly, a
significant capital lease obligation was recorded. Footnote 3 to the financial
statements provides for the disclosure of the details of this capital lease
transaction. Footnote 2 to the financial statements provides for the disclosure
of the details of the company's borrowings.
The increase in shareholders' equity for the nine months ended September
30, 1999 is due to the sale of common stock for $100,000 (400,000 shares), the
acquisition of the assets of Tri-State Chemex, Inc. for $150,000 (300,000
shares), the payment of salaries and professional fees of $126,196 (1,577,455
shares), and debt conversion of $150,000 (1,577,455 shares). Shareholders'
equity was reduced by syndication costs of $92,187 related to the sale of common
stock and fund raising activities. The increase in shareholders' equity for the
nine months ended September 30, 1998 is due to the sale of common stock for
$80,000 (242,858 shares), the payment of salaries and professional fees of
$74,500 (265,000 shares), and debt conversion of $62,500 (62,500 shares).
Shareholders' equity was reduced by syndication costs of $187,309 related to the
sale of common stock and fund raising activities.
The company recognizes income at the point of sale. The company's revenues
decreased by $11,558 for the nine month period ended September 30, 1999 as
compared to the nine month period ended September 30, 1998. During the 2nd
quarter of 1998 the company sold and installed two drive thru truck wash systems
which accounted for the variance in revenues reported for the 1998 and 1999
periods. For the nine months period ended September 30, 1999 there were no drive
thru sales. Chemical sales to new customers increased three percent during the
nine month period ended September 30, 1999.
Due to the difference in the sales product mix, cost of revenues, as a
percentage of sales, improved by two percent during the nine month period ended
September 30, 1999 as compared to the nine month period ended September 30,
1998.
During the nine month period ended September 30, 1999 operating expenses
totaled $872,008 as compared to $628,900 for the nine month period ended
September 30, 1998, an increase of $243,108. Of the increased amount, $126,196
is attributed to the non-cash payment of salaries and professional fees. The
balance of the increase is the result of start up expenses at the Hahnville Tank
Wash and increased insurance costs. The primary expense in Hahnville was
salaries before the facility became revenue producing. The Hahnville Tank Wash
employees seven full time persons and operates fifteen hours a day, six days a
week.
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During the nine month period ended September 30, 1999 the company incurred
a net loss from operations of $255,248 as compared with a net loss of $12,387
for the nine month period ended September 30,1998. The primary factors
contributing to the loss in 1999 were the non-cash salary and professional fees
charge of $62,000 and $64,196 respectively. In addition, the costs related to
raising capital, legal, and accounting have increased. Costs related to the
acquisition of the assets and business accounts of Tri-State Chemex, Inc. were
higher than anticipated due to the addition of two new employees, and unforeseen
difficulty in converting that operation into the operating methods of the
company. The start up of Hahnville produced an operating loss of $59,000 through
September 30, 1999 and both interest expense and depreciation expenses increased
due to the purchase and financing of new equipment for Hahnville.
PENNY STOCK REGULATIONS
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00. The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document prepared by
the SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. These disclosure requirements may have the
effect of reducing the level of trading activity in any secondary market for a
stock that becomes subject to the penny stock rules. The company's common stock
may be subject to the penny stock rules, and accordingly, investors in the
company's common stock may find it difficult to sell their shares in the future,
if at all.
ITEM 7. DESCRIPTION OF PROPERTY
HARDEN, TEXAS. The company is purchasing 3.3 acres in Hardin, Texas which
serves as corporate headquarters and its primary manufacturing facility, with
total of 5,500 square feet of office, manufacturing, and warehouse space. The
current mortgage balance is approximately $67,517. The company entered into a
note payable in September 1998, which provides for monthly payments of $941 for
120 months.
HAHNVILLE, LOUISIANA. The company has entered into a lease purchase
contract with Trimac Transportation for the purchase of 1.52 acres, in
Hahnville, Louisiana. The site has 52,844 square feet of 6" reinforced concrete
paving and is surrounded by a chain link fence. The steel frame industrial
building is 7,399 square feet and has two maintenance bays and one oversized
cleaning bay capable of handling two trailers at a time, plus a boiler/equipment
room. Finished office area is 508 square feet plus a 612 square feet finished
mezzanine with an eating area and shower facility. The current balance owed is
$420,000 payable in monthly payments of $5,000. One half of the payment is a
lease payment, and one half is applied to the principal balance, with a balloon
payment after 60 months of $277,500. Payments began June 1, 1999.
The company rents on a month-to-month basis small warehouses in
Statesville, North Carolina; Providence, Rhode Island; and Warsaw, Indiana at a
total monthly rental of $1,450.
The company believes its present facilities are adequate for its current
operations, and that its properties are adequately covered by insurance.
In August 1999, the company entered into a real estate purchase option
which will allow the company to acquire property in Baton Rouge, Louisiana,
which Philip Services Corporation currently leases and operates as a tank wash
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and waste water treatment facility. The option allows the company to purchase
the facility for a period six months at a purchase price of $1,350,000.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The Company's directors, executive officers, and significant employees
are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kenneth A. Phillips 55 Director and President
Jay G. Phillips 26 Director and Vice-President, Customer Service
Richard R. Royall 53 Director
Kathryn M. Phillips 51 Secretary and Treasurer
Jason Lay 34 Vice-President, Technical Services
Ronald Wallace 42 Vice-President, General Manager, Container Division
</TABLE>
KENNETH A. PHILLIPS is the company's founder and has served as a Director
and as President since the company was founded in 1986.
JAY G. PHILLIPS has served as Vice-President, Customer Service since May
1998. Mr. Phillips began working for the company part time while in high school
and became a full time customer service representative in January 1994, where he
was responsible for the company's business in the eastern United States,
servicing customers from the Statesville, North Carolina warehouse. In June
1995, Mr. Phillips was elected as a Director of the company. In April 1998, Mr.
Phillips assumed his current duties in Texas where he supervises four customer
service representatives across the eastern half of the country.
RICHARD R. ROYALL has served as a Director of the company since June 1996.
Mr. Royall has been a partner
in the accounting firm of Royall & Fleschler, certified public accountants, for
the past twelve years. Since April 1997, Mr. Royall has served as Chief
Financial Officer of Eagle Wireless International, Inc.
KATHRYN M. PHILLIPS has served as the company's Secretary and Treasurer
since the founding of the company in 1986. Ms. Phillips is a graduate of Texas
Tech University and has for the past 25 years held positions in general business
accounting and controllership. From February 1986 until January 1997, Ms.
Phillips was plant controller for Akzo Nobel Chemical Co., and worked part-time
for the company. Ms. Phillips has been a full-time employee of the company since
January 1997.
JASON LAY is Vice-President, Technical Services, a position held since May
1998. Mr. Lay is responsible for design and implementation of all equipment
systems. Mr. Lay joined the company in June 1994 as a technician.
RONALD WALLACE joined the company in June 1999 as Vice-President, General
Manager, Container Division. From April 1997 until June 1999, Mr. Wallace served
as a system service manager for Chemical Leaman Tank Lines, where he supervised
lease operators, system service coordinators, and ran the day-to-day operations.
From October 1996 until April 1997, Mr. Wallace served as an area manager for
MCX Transport, where he
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supervised the maintenance personnel and prepared the fuel and inventory
reports. From October 1991 until October 1996, Mr. Wallace served as service
center manager for Highway Transport, where he ran the service center
operations, and the shop and cleaning facility. Mr. Wallace has a B.S. in
Business Management from the University of New Orleans, and has been employed in
the trucking industry since 1985 in progressively responsible positions. In the
tank truck industry, Mr. Wallace has held positions as service center manager,
area manager, and regional manager, which involves supervision of multi-terminal
operations including tank wash operations.
Kathryn Phillips is the wife of Kenneth Phillips. Jay Phillips is the son
of Kenneth and Kathryn Phillips. There are no other family relationships.
Pursuant to the company's by-laws, each director is elected annually by the
company's stockholders at the company's annual meeting. The company's officers
serve at the discretion of the Board of Directors.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth the aggregate annual remuneration for the
company's three highest paid persons for the fiscal year ended December 31,
1998:
CAPACITIES IN WHICH
NAME OF INDIVIDUAL REMUNERATION WAS RECEIVED AGGREGATE REMUNERATION
- ------------------ ------------------------- ----------------------
Kenneth A. Phillips President $77,000
Jason Lay Vice-President, Technical Services $42,414
Jay G. Phillips Vice-President, Customer Service $41,890
In July 1996, Kenneth A. Phillips entered into a two-year employment
agreement with the company, which was renewed for an additional two-year period
in July 1998. The employment agreement called for a monthly salary of $9,000
plus an amount equal to 10% of the pretax profit of the company. The company and
Mr. Phillips have amended the employment agreement to allow the company to pay
Mr. Phillips a lesser salary, with the agreement that Mr. Phillips will receive
his salary as set forth in the employment agreement, as the company becomes
financially able to pay such salary. Any salary pursuant to the original
employment agreement that is unpaid is lost, as the parties have agreed not to
accrue such salary. The employment agreement provides for a vehicle to be
provided by the company, as well as health insurance. The employment agreement
may be terminated by the company, upon the death or disability of Mr. Phillips.
In June 1999, Ronald Wallace entered into a two-year employment agreement
with the company, which provides for a monthly salary of $4,416.67. The
employment agreement provides for a one-time cash bonus of $1,019.23 and 50,000
shares of common stock. The employment agreement may be terminated by the
company, upon the disability of Mr. Wallace, or with cause, which includes,
without limitation, gross negligence, the failure to perform essential duties,
and the willful engaging in misconduct injurious to the company.
9
<PAGE>
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets forth, as of November 1, 1999, the number and
percentage of outstanding shares of company common stock owned by the company's
three highest paid persons for the fiscal year ended December 31, 1998 (the
business address of each individual is the company executive offices at P.O.
Box 727 Hardin, Texas 77561, Hwy 834 East .7 miles):
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK
OWNER BENEFICIALLY OWNED PERCENTAGE OF OWNERSHIP
- ----- ------------------ -----------------------
Kenneth A. Phillips......... 2,903,179 37.2%
Jay G. Phillips............. 414,971 5.3%
Jason Lay................... 132,000 1.7%
All officers and directors
as a group (6 persons)...... 3,625,150 46.5%
<TABLE>
<CAPTION>
TITLE AND AMOUNT OF SECURITIES CALLED
NAME OF HOLDER FOR BY OPTIONS OR WARRANTS EXERCISE PRICE DATE OF EXERCISE
- -------------- -------------------------- -------------- ------------------
<S> <C> <C> <C>
Kenneth A. Phillips. 100,000 of company common stock $1.00 expire 12/01/2001
Jay G. Phillips..... -- -- --
Jason Lay........... -- -- --
All officers and directors
as a group (6 persons) 100,000 of company common stock $1.00 expire 12/01/2001
</TABLE>
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In June 1994, the company issued Jay G. Phillips 294,971 shares of common
stock for $15,000. In October 1997, the company issued Kenneth A. Phillips a
warrant to purchase 100,000 shares of common stock at an exercise price of $0.30
per share, which were exercised in March 1998. In October 1997, the company
issued Kenneth A. Phillips a warrant to purchase 100,000 shares of common stock
at an exercise price of $1.00 per share, which expire in December 2001. In July
1999, the company issued Kenneth A. Phillips 500,000 shares of common stock, Jay
G. Phillips 100,000 shares of common stock, Jason Lay 100,000 shares of common
stock, Ronald Wallace 50,000 shares of common stock, and Richard Royall 75,000
shares of common stock for services rendered.
ITEM 12. SECURITIES BEING REGISTERED
The company is registering its common stock under Section 12(g) of the
Securities Exchange Act of 1934, as amended. The company is authorized to issue
up to 50,000,000 shares of common stock, $0.01 par value per share, of which, as
of September 30, 1999, 8,507,872 shares are issued and outstanding and 587,500
shares are reserved for issuance underlying outstanding options or warrants, at
exercise prices of between $0.15 and $2.00 per share, which expire between
September 2000 and December 2001. In the event of liquidation, holders of common
stock are entitled to share ratably in the distribution of assets remaining
after
10
<PAGE>
payment of liabilities. Holders of common stock have no preemptive or other
rights to subscribe for shares. Holders of common stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor.
11
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The company's common stock trades under the symbol "FLSY" on the OTC
Electronic Bulletin Board. The market for the common stock on the OTC Electronic
Bulletin Board is limited, sporadic, and highly volatile. The following table
sets forth the high and low bid prices per share of the common stock since the
common stock began trading on September 9, 1998, as reported by the OTC
Electronic Bulletin Board. These prices reflect inter-dealer prices, without
retail mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions.
HIGH LOW
---- ---
FISCAL 1998
-----------
Third Quarter (beginning September 9, 1998) .75 .75
Fourth Quarter ............................ 1.375 .6875
FISCAL 1999
-----------
First Quarter ............................. .6875 .25
Second Quarter ............................ .625 .11
Third Quarter ............................. .27 .085
On November 10, 1999, the last bid price of the Common Stock as reported
by the OTC Electronic Bulletin Board was $.06. The company believes that as of
September 7, 1999, there were approximately 375 record owners of its common
stock. It is the present policy of the company not to pay cash dividends and to
retain future earnings to support the company's growth. Any payment of cash
dividends in the future will be dependent upon the amount of funds legally
available therefor, the company's earnings, financial condition, capital
requirements and other factors that the Board of Directors may deem relevant.
The company has not paid any dividends during the last two fiscal years and does
not anticipate paying any cash dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The company is the plaintiff in a suit in which, Leroy Sievers, a former
employee is being sued for violating a covenant not to compete. The suit was
filed August 1996 in the 75th district court in Liberty County, Texas. In 1997,
the suit was expanded to a co-conspirator who was assisting the defendant. In
April 1997, a temporary injunction was ordered to prevent the defendants from
competing further. The injunction is still in effect. The company is seeking
damages, reimbursement of expenses, and enforcement of the non-compete
agreement. In August 1999, the co-conspirator settled with the company for
$17,500 cash and a four year non-compete agreement, plus cooperation with the
company in pursuing it's claim against the original defendant. In 1996, the
defendant countersued the company for wrongful termination and for unspecified
damages.
The company is the defendant in a suit filed in the 29th Judicial District
Court, St. Charles Parish, State of Louisiana. The company's attorney has filed
a motion to remove the case to United States District Court, Eastern District of
Louisiana. The plaintiff, Timothy Litel, alleges that the company entered into a
verbal agreement for a partnership in the Hahnville, Louisiana tank wash. The
plaintiff has alleged fraud and breach of contract, with
II - 1
<PAGE>
damages unspecified. The company has denied the allegations, and intends to
vigorously defend the case.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth certain information for all
securities the company sold within the past three years, without registration
under the Securities Act of 1933, as amended ("Securities Act"). There were no
underwriters in any of these transactions, nor were any sales commissions paid
thereon.
1. In October 1997, the company issued Kenneth A. Phillips a warrant to
purchase 100,000 shares of common stock at an exercise price of $.30 per
share, expiring April 30, 1998, which were exercised in March 1998. In
October 1997, the company issued Kenneth A. Phillips a warrant to purchase
100,000 shares of common stock at an exercise price of $1.00 per share,
expiring December 31, 2001. The company believes the transactions were
exempt from registration pursuant to Section 4(2) of the Securities Act,
as Mr. Phillips is an officer and director of the company and an
accredited investor, and since the transaction was non-recurring and
privately negotiated.
2. During the last quarter of 1997, the company issued five convertible
notes, three notes of $25,000 each and two notes of $12,500 each, to five
non-affiliates in exchange for loans in the aggregate amount of $100,000.
The principal amount and accrued interest on each note may be converted
into shares at the rate of $1.00 of principal amount per share. In
addition, the note holders received warrants to purchase an aggregate of
100,000 shares of common stock at an exercise price of $2.00 per share,
expiring September 30, 2000. In September 1998, the company issued an
aggregate of 62,500 shares of common stock to three individuals who
exercised their conversion option. The company believes the securities
issued and the underlying shares of common stock issued were exempt from
registration pursuant to Rule 504 of the Securities Act.
3. In July 1997, the company issued an aggregate of 549,400 shares to Mega
Holding Corporation, a New York corporation, which in January 1998,
distributed an aggregate of 300,000 shares to its shareholders and an
aggregate of 145,000 shares to three individuals and five entities,
retaining 104,400 shares. The company valued these shares at $60,434 or
$.11 per share. The company believes the securities issued were exempt
from registration pursuant to Rule 504 of the Securities Act.
4. In September 1998, the company issued 25,000 shares of stock to A&R
Transport, Inc. ("A&R") as partial consideration for A&R entering into an
agreement with the company, whereby the company is the sole and exclusive
supplier of cleaning chemicals to A&R. In September 1998, the company
issued an aggregate of 240,000 shares of stock to two non-affiliated
corporations and two non-affiliated attorneys for financial consulting and
legal services rendered. The company has valued these shares at $66,000 or
$.30 per share. In December 1998, the company issued 344,858 shares to six
non-affiliated entities for cash consideration of $168,314.50, or an
average of $.485 per share. The company believes the above securities
issued were exempt from registration pursuant to Rule 504 of the
Securities Act.
5. In February 1999, the company issued to one non-affiliate an 8% Series A
Senior Subordinated Convertible Redeemable Debenture in the principal
amount of $200,000. The conversion price for each conversion share is 75%
of the closing bid price of the common stock as reported on the OTC
Bulletin Board for the trading day which immediately precedes the date of
receipt by the company of the conversion
II - 2
<PAGE>
notice. As of the date of this filing, 1,297,168 shares have been issued
as conversion of $136,000 of the principal amount, or an average of $.1274
per share. In February 1999, the company issued 200,000 shares to one
non-affiliate for cash consideration of $50,000. In March 1999, the
company issued an aggregate of 200,000 shares and warrants exercisable at
$.50 per share until September 30, 2000 to two non-affiliates for $50,000.
The company believes the securities issued above were exempt from
registration pursuant to Rule 504 of the Securities Act.
6. In June 1999, the company issued a two-year option to purchase 400,000
shares of common stock at an exercise price of $.15 per share, provided
the company's bid price of its common stock exceeds $1.00, to an
accredited investor. The investor received the option for services
rendered to the company in connection with investor relations services. In
July 1999, the company issued an aggregate of 1,577,455 shares of common
stock to 17 accredited investors for services rendered, including an
aggregate of 825,000 shares to its officers and directors. The company
believes the above transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act, as the recipients were all accredited
investors, and since the transactions were non-recurring and privately
negotiated.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Texas law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The amended and
restated by-laws of the company limit the liability of directors of the company
(in their capacity as directors but not in their capacity as officers) to the
company or its stockholders to the fullest extent permitted by Texas law.
Specifically, directors of the company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
company or its stockholders, (ii) for acts or omissions not in good faith that
constitute a breach of duty of the director to the company or an act or omission
which involves intentional misconduct or a knowing violation of law, (iii) for
an act or omission for which the liability of a director is expressly provided
by an applicable statute, or (iv) for any transaction from which the director
received an improper personal benefit, whether the benefit resulted from an
action taken within the scope of the director's office. Section 2.41 of the
Texas Business Corporation Act relates to directors' liability for unlawful
dividends and stock issuances.
The inclusion of this provision in the by-laws may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the company and its stockholders.
The company's amended by-laws provide for the indemnification of its
executive officers and directors, and the advancement to them of expenses in
connection with any proceedings and claims, to the fullest extent permitted by
the Texas Business Corporation Act. The amended by-laws include related
provisions meant to facilitate the indemnities' receipt of such benefits. These
provisions cover, among other things: (i) specification of the method of
determining entitlement to indemnification and the selection of independent
counsel that will in some cases make such determination, (ii) specification of
certain time periods by which certain payments or determinations must be made
and actions must be taken, and (iii) the establishment of certain presumptions
in favor of an indemnitee. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling the company pursuant to the foregoing provisions, the company has
been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
II - 3
<PAGE>
PART III
ITEM 1. EXHIBITS
The following exhibits are to be filed as part of the Registration
Statement:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 2.1(1) Articles of Incorporation of Fleetclean Systems,
Inc.
Exhibit 2.2(1) Amended and Restated Bylaws of Fleetclean Systems,
Inc.
Exhibit 3.1(1) Common Stock Certificate of Fleetclean Systems,
Inc.
Exhibit 6.1(1) Kenneth A. Phillips Employment Agreement
Exhibit 6.2(1) Ronald Wallace Employment Agreement
Exhibit 6.3(2) Addendum to Kenneth A. Phillips Employment
Agreement
Exhibit 10.1(2) Consent of McManus & Co., P.C.
(1) Filed previously on Form 10-SB, SEC File No. 0-27467.
(2) Filed herewith
ITEM 2. DESCRIPTION OF EXHIBITS
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLEETCLEAN SYSTEMS, INC.
Dated: November 12, 1999 By: /s/ KENNETH A. PHILLIPS
KENNETH A. PHILLIPS,
Chief Executive Officer
III - 1
<PAGE>
- --------------------------------------------------------------------------------
FLEETCLEAN SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey 07950
<PAGE>
- --------------------------------------------------------------------------------
FLEETCLEAN SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
Table of Contents
PAGE
----
Independent Accountant's Report ....................................... 1
Balance Sheets ........................................................ 2-3
Statements of Operations .............................................. 4
Statements of Changes in Shareholder's Equity ......................... 5
Statements of Cash Flows .............................................. 6
Notes to the Financial Statements ..................................... 7-14
i
<PAGE>
[McMANUS & C0., P.C. LETTERHEAD]
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders
of Fleetclean Systems, Inc.:
We have audited the accompanying balance sheets of Fleetclean Systems, Inc. as
of December 31, 1998 and 1997 and the related statements of income and retained
earnings, stockholders' equity, and cash flows for the years ended December 31,
1998, 1997, and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fleetclean Systems, Inc. at
December 31, 1998 and 1997 and the results of its operations, stockholders'
equity, and its cash flow for the years ended December 31, 1998, 1997, and 1996,
in conformity with generally accepted accounting principles.
/s/ McMANUS & CO., P.C.
McManus & Co., P.C.
Morris Plains, New Jersey
February 15, 1999
<PAGE>
FLEETCLEAN SYSTEMS, INC.
BALANCE SHEETS
ASSETS
DECEMBER 31,
1998 1997
----------- -----------
CURRENT ASSETS:
Cash .......................................... $ 54,383 $ 200
Accounts Receivable (Note 1) .................. 131,888 105,820
Employee Advances ............................. 1,829 1,125
Inventory (Note 1) ............................ 125,573 90,246
Prepaid Expenses .............................. 18,093 21,078
Deferred Tax Asset ............................ 22,421 2,263
----------- -----------
Total Current Assets ........................ 354,187 220,732
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT: (NOTES 1 & 2)
Transportation Equipment ...................... 345,796 218,422
Building ...................................... 95,120 95,120
Demo Machinery ................................ 381,969 297,509
Furniture and Fixtures ........................ 34,108 26,232
Land .......................................... 10,000 10,000
Leasehold Improvements ........................ 3,012 3,012
Machinery and Equipment ....................... 182,688 153,190
Less: Accumulated Depreciation .............. (414,442) (319,360)
----------- -----------
Total Property, Plant, and Equipment ........ 638,251 484,125
----------- -----------
OTHER ASSETS:
Other Assets .................................. 460 200
Deferred Public Offering Costs (Note 7) ....... 0 112,988
Intangible Asset (Note 6) ..................... 500 500
Less: Accumulated Amortization .............. (66) (33)
----------- -----------
Total Other Assets .......................... 894 113,655
----------- -----------
TOTAL ASSETS .................................. $ 993,332 $ 818,512
=========== ===========
2
<PAGE>
FLEETCLEAN SYSTEMS, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
1998 1997
---------- ----------
CURRENT LIABILITIES:
Accounts Payable .................................. $ 98,024 $ 84,687
Notes Payable (Note 3) ............................ 126,566 209,034
Payroll Taxes Payable ............................. 916 637
Sales Tax Payable ................................. 6,193 5,592
Accrued Expenses .................................. 28,486 28,250
---------- ----------
Total Current Liabilities ....................... 260,185 328,200
---------- ----------
LONG - TERM LIABILITIES:
Deferred Tax Liability ............................ 28,882 8,358
Notes Payable - Net of Current Portion (Note 3) ... 272,372 210,283
---------- ----------
Total Long - Term Liabilities ................... 301,254 218,641
---------- ----------
Total Liabilities ................................. 561,439 546,841
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Common Stock - $.01 par value
Authorized 50,000,000 shares
Issued and Outstanding - 4,736,758 & 3,964,400
at 1998 and 1997, respectively ................ 47,367 39,644
Paid In Capital ................................... 368,091 217,802
Retained Earnings ................................. 16,435 14,225
---------- ----------
Total Stockholders' Equity ...................... 431,893 271,671
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 993,332 $ 818,512
========== ==========
3
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INCOME:
Net Sales .............................................. $ 1,028,952 $ 832,729 $ 816,029
Less: Cost of Goods Sold ............................... 224,627 208,539 245,240
----------- ----------- -----------
Gross Profit ......................................... 804,325 624,190 570,789
----------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries ............................................... 376,861 275,096 344,043
Payroll Taxes .......................................... 30,804 24,121 29,848
Advertising ............................................ 3,861 761 799
Auto Expense ........................................... 56,223 12,744 16,572
Bad Debts .............................................. -- 1,089 433
Bank Service Charges ................................... 440 362 752
Commissions ............................................ 1,021 -- --
Depreciation and Amortization .......................... 113,291 102,704 97,615
Dues & Subscriptions ................................... 664 355 1,213
Entertainment .......................................... 670 583 660
Insurance .............................................. 52,491 50,879 57,774
Interest Expense ....................................... 46,318 37,054 32,727
Licenses & Fees ........................................ 1,716 1,605 1,194
Office Expense ......................................... 8,646 20,623 6,386
Postage ................................................ 1,354 865 573
Professional Fees ...................................... 29,039 21,168 27,358
Rent ................................................... 4,840 9,888 15,200
Taxes - other .......................................... 6,427 1,936 2,686
Telephone & Utilities .................................. 18,630 19,858 19,653
Trailer Expense ........................................ 3,555 1,632 7,376
Training ............................................... 418 401 847
Travel ................................................. 42,254 11,456 9,976
----------- ----------- -----------
Total General and Administrative Expenses ............ 799,523 595,180 673,685
----------- ----------- -----------
INCOME/(LOSS) FROM OPERATIONS ............................. 4,802 29,010 (102,896)
OTHER INCOME/(EXPENSE)
Miscellaneous Income - Net ............................. 608 8,142 (1,440)
Gain/(Loss) on Sale of Asset ........................... (2,970) -- --
----------- ----------- -----------
Total Other Income ................................... (2,362) 8,142 (1,440)
NET INCOME/(LOSS) BEFORE INCOME TAXES ..................... 2,576 37,152 (104,336)
Provision For Income Taxes ............................. 366 7,199 (1,104)
----------- ----------- -----------
NET INCOME/(LOSS) ......................................... 2,210 29,953 (103,232)
RETAINED EARNINGS/(DEFICIT) BEGINNING OF YEAR ............. 14,225 (15,728) 87,504
----------- ----------- -----------
RETAINED EARNINGS/(DEFICIT) END OF YEAR ................... $ 16,435 $ 14,225 $ (15,728)
=========== =========== ===========
Net Income/(Loss) Per Common Share
Basic (Note 1) ................. $ NIL $ 0.01 $ (0.03)
Diluted (Note 1) ............... $ NIL $ 0.01 $ (0.03)
</TABLE>
4
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
JANUARY 1, 1996 COMMON COMMON PAID IN RETAINED STOCKHOLDERS'
TO DECEMBER 31, 1998 STOCK STOCK CAPITAL EARNINGS EQUITY
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
January 1, 1996 ............................... 14,458 $ 145 $ 46,867 $ 75,156 $ 122,168
Issuance of Common Stock ...................... 761 8 49,992 -- 50,000
Issuance of Common Stock ...................... 1,522 15 99,985 -- 100,000
Stock Split of 1 to 203.991 ................... 3,398,252 33,982 (33,982) -- --
Prior Period Adjustment -
Income Tax Loss Carryback .................. -- -- -- 12,348 12,348
Net Loss (1996) ............................... (103,232) (103,232)
---------- ---------- ---------- ---------- ----------
Total Stockholders' Equity
As of December 31, 1996 ....................... 3,414,993 34,150 162,862 (15,728) 181,284
Services Rendered ............................. 549,407 5,494 54,940 -- 60,434
Net Income (1997) ............................. 29,953 29,953
---------- ---------- ---------- ---------- ----------
Total Stockholders' Equity
As of December 31, 1997 ....................... 3,964,400 39,644 217,802 14,225 271,671
---------- ---------- ---------- ---------- ----------
Issuance of Common Stock ...................... -- -- -- -- --
Exercise of Warrants (March 1998) ............. 100,000 1,000 29,000 -- 30,000
Conversion of Notes Payable (Sept. 1998) ...... 62,500 625 61,875 -- 62,500
Issuance of Common Stock for Services
Rendered (Sept. 1998) ...................... 265,000 2,650 71,850 -- 74,500
Sale of Common Stock (Sept. 1998) ............. 142,858 1,428 48,572 -- 50,000
Sale of Common Stock (Dec. 1998) .............. 202,000 2,020 129,280 -- 131,300
Syndication Costs ............................. -- -- (190,288) -- (190,288)
Net Income (1998) ............................. 2,210 2,210
---------- ---------- ---------- ---------- ----------
Total Stockholders' Equity
As of December 31, 1998 ....................... 4,736,758 $ 47,367 $ 368,091 $ 31,643 $ 431,893
========== ========== ========== ========== ==========
</TABLE>
5
<PAGE>
FLEETCLEAN SYSTEMS, INC.
Statements of Cash Flows
For the Year Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net Income/(Loss) ................................................ $ 2,074 $ 29,953 $(103,232)
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities:
Depreciation and Amortization ................................ 112,170 102,704 97,615
(Increase)/Decrease in Accounts Receivable ..................... (26,068) 3,536 50,982
(Increase)/Decrease in Employee Advances ....................... (704) (73) 1,708
(Increase)/Decrease in Inventories ............................. (35,328) 34,701 (18,218)
(Increase)/Decrease in Payroll Taxes Receivable ................ -- 5,208 (5,208)
(Increase)/Decrease in Prepaid Expenses ........................ 2,985 6,165 (23,253)
(Increase)/Decrease in Income Taxes Receivable ................. -- 12,348 (12,348)
(Increase)/Decrease in Deferred Public Offering Costs .......... 112,988 (76,684) (36,304)
(Increase)/Decrease in Intangible Assets ....................... -- -- --
(Increase)/Decrease in Other Assets ............................ (260) -- (200)
(Increase)/Decrease in Deferred Tax Asset ...................... (20,158) 1,632 (3,895)
Increase/(Decrease) in Accounts Payable ........................ 13,337 (27,752) 14,199
Increase/(Decrease) in Accounts Payable - trade ................ -- (9,448) 9,448
Increase/(Decrease) in Payroll Taxes Payable ................... 279 637 (7,724)
Increase/(Decrease) in Sales Taxes Payable ..................... 601 680 (1,024)
Increase/(Decrease) in Income Taxes Payable .................... -- (6,260) (3,340)
Increase/(Decrease) in Accrued Expenses ........................ 236 11,753 (3,540)
Increase/(Decrease in Deferred Tax Liability .................. 20,524 5,567 2,791
Increase/(Decrease) in Prior Period Adjustment
- NOL Carryback ........................................... -- -- 12,348
--------- --------- ---------
Net Cash Provided/(Used) for Operating Activities ........... 182,812 94,667 (29,195)
--------- --------- ---------
Investing Activities:
Purchase of Property, Plant, and Equipment ..................... (249,208) (200,488) (241,394)
Disposal of Property, Plant, and Equipment ..................... (17,054) -- --
--------- --------- ---------
Net Cash Provided/(Used) for Investing Activities ........... (266,262) (200,488) (241,394)
--------- --------- ---------
Financing Activities:
Increase/(Decrease) in Notes Payable ........................... (20,379) 45,387 119,647
Issuance of Common Stock ....................................... 158,012 60,434 150,000
--------- --------- ---------
Net Cash Provided/(Used) by Financing Activities ............ 137,633 105,821 269,647
--------- --------- ---------
Net Increase/(Decrease) In Cash .................................. 54,183 -- (942)
Cash Beginning of Year ........................................... 200 200 1,142
--------- --------- ---------
Cash End of Year ................................................. $ 54,383 $ 200 $ 200
========= ========= =========
Additional Disclosure of Operating Cash Flow Cash paid
during the period ended December 31,
1998 1997 1996
--------- --------- ---------
Interest Expense .................................. $ 47,303 $ 37,054 $ 32,727
Income Taxes ..................................... $ (1,267) $ 7,199 $ --
</TABLE>
6
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Fleetclean Systems, Inc. (the Company) incorporated as a Texas corporation
and commenced business on June 1, 1986. The Company is engaged in the
business of sales and service of truck washing equipment to the trucking
industry (large fleet operations). In 1994 the Company expanded its
operations to include the manufacture of equipment and blending of washing
materials with its own chemical formulas.
A) INVENTORY
Inventories are valued at the lower of cost or market. Cost is determined
by using the average cost method. Inventories consist primarily of parts
and chemicals.
B) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are carried at cost less accumulated
depreciation and amortization. Prior to January 1, 1996, depreciation was
calculated using the modified accelerated cost recovery system as provided
by the tax reform act of 1986 for property and equipment acquired after
December 31, 1986 for both book and tax purposes. Commencing January 1,
1996, the company continues to use the modified accelerated method above
for income tax purposes, however, it calculates depreciation using the
straight-line method for book purposes. The recovery classifications are
as follows:
Demonstration Equipment 7 years
Furniture and Fixtures 7 years
Machinery and Equipment 7 years
Leasehold Improvements life of lease
Trucks 5 years
All repair and maintenance costs are charged against income in the period
incurred. Any repairs that increase the life of the asset are capitalized
and depreciated over the adjusted life of the asset.
C) INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards (FASB) No. 109, "Accounting for Income Taxes", which requires a
change from the deferral method to assets and liability method of
accounting for income taxes. Timing differences exist between book income
and tax income that primarily relates to depreciation.
7
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
D) ACCOUNTS RECEIVABLE
Management has elected to write-off uncollectable receivables to bad debt
expense at the time they are identified. No accounts receivables were
written off during 1998.
E) REVENUE RECOGNITION
Revenue from the sale of products is recorded when the merchandise is
shipped to customers. Revenues from services and repairs are recorded as
the related services are performed.
F) NET EARNINGS PER COMMON SHARE
Net earnings per common share are shown as both basic and diluted. Basic
earnings per share are computed by dividing net income less and preferred
stock dividends (if applicable) by the weighted average number of shares
of common stock outstanding. Diluted earnings per common share are
computed by dividing net income by the weighted average number of shares
of common stock outstanding plus any dilutive common stock equivalents.
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
Weighted Average Number of Common
Shares Outstanding Including:
Basic Common Shares 4,229,679 3,460,776
Dilutive Common Shares 4,492,179 3,860,776
G) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumption that affect the reported amounts of assets and liabilities and
disclosure of contingent asset and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
H) ADVERTISING
Advertising costs are expensed as incurred. Advertising expenses was
$3,861, $761, and $799 during the years ended December 31, 1998, 1997, and
1996, respectively.
8
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
I) ACCOUNTING PRONOUNCEMENTS
During August of 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) No. 98-5 "Reporting
on the Costs of Start-Up Activities". This statement requires all costs
related to a company's start-up activities be expensed during the period
incurred rather than capitalized and amortized over a period of time.
This pronouncement becomes effective for fiscal years beginning after
December 15, 1998. The Company has not elected early application of this
new statement.
NOTE 2 - PROPERTY, PLANT, AND EQUIPMENT:
Components of property, plant, and equipment, at December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Demonstration Equipment ............................. $ 381,969 $ 297,509
Furniture and Fixtures .............................. 34,108 26,232
Machinery and Equipment ............................. 182,688 153,190
Leasehold Improvements .............................. 3,012 3,012
Land ................................................ 10,000 10,000
Building ............................................ 95,120 95,120
Transportation Equipment ............................ 345,796 218,422
----------- -----------
Total Property, Plant, and Equipment ........... $ 1,052,693 $ 803,485
Less: Accumulation Depreciation ..................... (414,442) (319,360)
----------- -----------
Net Property, Plant, and Equipment ............. $ 638,251 $ 484,125
=========== ===========
</TABLE>
NOTE 3 - LONG -TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AMOUNT
NOTE HOLDER MATURITY DATE INTEREST RATE 1998 1997 PURPOSE
----------- ------------- ------------- --------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Compass Bank 09/02/98 2% over prime $ - 0 - $ 59,711 Working Capital
Compass Bank 02/09/99 9.75% - 0 - 26,897 Equipment
Citizens Bank 05/10/99 9.75% 2,232 8,158 1995 truck
Citizens Bank 03/15/99 8.49% - 0 - 8,237 1995 truck
Citizens Bank 02/09/00 2% over prime 8,284 14,994 1996 truck
Citizens Bank 02/09/00 2% over prime 8,284 14,994 1996 truck
Associated Comm. 05/31/00 10.50% 23,044 38,406 UD Box Van
Associated Comm. 06/18/00 10.50% 17,456 30,063 95 UD Flat
Bank United 06/01/98 2% over prime - 0 - 17,500 BK United
</TABLE>
9
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - LONG -TERM DEBT: (continued)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AMOUNT
NOTE HOLDER MATURITY DATE INTEREST RATE 1998 1997 PURPOSE
----------- ------------- ------------- --------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Compass Bank 04/02/98 2% over prime - 0 - 42,000 Line of Credit
Dayton State Bank 06/13/07 3% over prime - 0 - 58,357 Building
Cynthia Burger 12/25/98 9% - 0 - 25,000 Working Capital
Magic Transportation 03/31/99 9% 25,000 25,000 Working Capital
Al Clifford 03/31/99 9% - 0 - 25,000 Working Capital
Penelope Banks 03/31/99 9% 12,500 12,500 Working Capital
Susan Knickrehm 03/31/99 9% - 0 - 12,500 Working Capital
Case Credit 08/10/03 10.6% 30,800 - 0 - '99 Ford Truck
Case Credit 10/06/03 9.6% 104,318 - 0 - '99 KW Trucks
1st Liberty National 09/25/03 3% over prime 96,527 - 0 - Working Capital
1st Liberty National 09/04/08 9.875% 70,493 - 0 - Land / Building
---------- ---------
Total Debt $ 398,938 $ 419,317
Less Current Portion (126,566) (209,034)
---------- ---------
Net Long - Term Debt $ 272,372 $ 210,283
========== =========
</TABLE>
The notes to C. Burger, M. Transportation, A.L. Clifford, P. Banks, and S.
Knickrehm are convertible to the Company's common stock at a rate of one
share for each dollar. This transaction may be done in part or whole at the
noteholder's option.
All notes, except the aforementioned, are personally guaranteed by the
President of the Company.
During 1998, C. Burger, A.L. Clifford, and S. Knickrehm converted their
notes, in full, into the Company's common stock. For each dollar converted,
the individuals received one share of the Company's common stock.
Principal repayment for each of the next five years are as follows:
1999 $ 126,566
2000 63,548
2001 54,801
2002 60,619
2003 & Thereafter 93,404
-----------
Total $ 398,938
===========
10
<PAGE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES:
The Company currently leases a facility located in Statesville, North
Carolina on a month-to-month basis. The monthly rental payment is $250 and
is terminable upon thirty days notice.
Additionally, the Company is currently engaged in a one-year lease for a
facility located in W. Lafayette, Indiana. This non-cancelable lease,
payable in monthly installments of $235, began September 1, 1998 and
expires on August 30, 1999.
Future minimum lease payments are summarized as follows:
DECEMBER 31, AMOUNT
--------------- ----------
1999 $ 1,880
Total $ 1,880
==========
NOTE 5 - WARRANTS:
In October 1997, the Board of Directors adopted a stock option plan under
which 100,000 shares of common stock have been reserved for issuance to
the president of the Company at a purchase price of $ .30 per share. Such
issuance shall lapse if not exercised on or before May 1, 1998. During
1998, these options were exercised.
At the end of 1997, the Company received an aggregate of $100,000 in the
form of five convertible notes bearing 9% interest and due in fifteen
months (See Note 3). Holders of these notes may convert their notes, in
whole or part, into the Company's common stock at the rate of one share
for every one dollar owed. In conjunction with the issuance of such
indebtedness, the Company has agreed to issue such investors $2.00
Warrants to purchase 100,000 additional shares of common stock.
The Company has issued and outstanding the following warrants which have
not yet been exercised at December 31, 1998:
25,000 stock purchase warrants expiring June 16, 1999. These
warrants are subject to the marketability of the Company's common
stock. The warrants are to purchase fully paid and non-assessable
shares of the common stock, par value $.01 per share at a purchase
price of $1.00 per share. Such transactions may occur in whole or in
part, but must never amount to less than 100 shares.
11
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - WARRANTS:
100,000 stock purchase warrants expiring December 2001. These
warrants are subject to the ability of the Company to become a
public company and future marketability of the common stock. The
warrants are to purchase fully paid and non-assessable shares of the
common stock, par value $.01 per share at a purchase price of $1.00
per share. Such transactions may occur in whole or in part, but must
never amount to less than 100 shares.
25,000; 25,000; 25,000; 12,500; and 12,500 stock purchase warrants
that expire September 30, 2000. These warrants are subject to the
ability of the Company to become a public company and future
marketability of the common stock. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par value
$.01 per share at a purchase price of $2.00 per share. Such
transactions may occur in whole or in part, but must never amount to
less than 100 shares.
NOTE 6 - INTANGIBLE ASSETS:
Intangible assets consist of goodwill and organization costs. The goodwill
was created during 1994 with an acquisition whereas organization costs
were primarily incurred during the reorganization of the Company's main
office. Goodwill and organization costs are both amortized using the
straight-line method for a period of fifteen (15) years. Accumulated
amortization at December 31, 1998 and 1997 was $2,283 and $ 1,129,
respectively.
According to the AICPA's SOP 98-5 (See Note 1), the Company will expense
any organization costs incurred subsequent to December 31, 1998 as
incurred.
NOTE 7 - DEFERRED PUBLIC OFFERING COSTS:
Deferred public offering costs consist of those expenditures incurred
during an attempt to raise capital by selling the Company's common stock
under Regulation D, Rule 504 of the Securities and Exchange Commission
(see Note 10). Upon successful completion of this offering, all expenses
incurred will be reclassified to additional paid in capital and treated as
syndication costs. During 1998, with the 504 stock offering substantially
complete, the Company has reclassified all deferred public offering costs
as syndication costs that reduced additional paid in capital.
NOTE 8 - LITIGATION:
The Company is the plaintiff in a suit in which the defendant (a former
employee) is being sued for violating a covenant not to compete.
Management is seeking damages and reimbursement of legal fees and is
confident that the Company will prevail in this case.
12
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - INCOME TAXES:
As discussed in note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Implementation of SFAS 109 did not have a material cumulative
effect on prior periods nor did it result in a change to the current
year's provision.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as follows:
DECEMBER 31,
1998 1997
------- -------
% %
U.S. Federal Statutory Tax Rate 15 34
U.S. Valuation Difference (-0-) (34)
Effective U.S. Tax Rate 15 - 0 -
======= =======
B) Deferred income taxes are provided for differences between financial
statement and income tax reporting. Principal difference is the manner in
which depreciation is computed for financial and income tax reporting
purposes.
C) The Company experienced income tax losses of $26,796 and $107,852
for the years ended December 31, 1998 and 1996, respectively.
These losses were carried back the allowable three years in order
to offset $81,866 of prior period income. The resulting effects
of this loss carry-back was a refund to the Company in the amount
of $12,348 which constituted federal income taxes paid according
to the liabilities in each of the three preceding tax years;
1995, 1994, and 1993. Additionally, the Company continues to
carry a net operating losses of approximately $25,966 and $26,796
which will expire in 2011 and 2013, respectively, or until it is
completely used; whichever occurs first.
13
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 10 - EARNING PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- --------------- ---------
<S> <C> <C> <C>
Net Loss ..................................... $ 2,210
Basic EPS:
Loss Available to common stockholders ...... 2,210 4,229,679 $NIL
Effect of Dilutive Securities:
Warrants ................................... 0 0
--------------- --------------- ---------
Diluted EPS:
Loss available to common stockholders
and assumed conversions .................. $ 2,210 4,229,679 $NIL
=============== =============== =========
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- --------------- ---------
<S> <C> <C> <C>
Net Loss ..................................... $ 29,953
Basic EPS:
Loss Available to common stockholders ...... 29,953 3,460,776 $0.01
=========
Effect of Dilutive Securities:
Warrants ................................... 0 100,000
--------------- ---------------
Diluted EPS:
Loss available to common stockholders
and assumed conversions .................. $ 29,953 3,560,776 $0.01
=============== =============== =========
</TABLE>
For the years ended December 31, 1998 and 1997, options and warrants
equivalent to 262,500 and 300,000 shares, respectively, were considered
anti-dilutive
NOTE 11 - SUBSEQUENT EVENTS:
Fleetclean Systems, Inc. is in the process of registering its common stock
in certain states. This registration is being conducted in accordance with
the Securities and Exchange Commission rule 504 of Regulation D. This
registration allows the Company to sell no more than $1,000,000 of its
securities to the public.
Subsequent to December 31, 1998, the Company acquired the assets of
Tri-State Chemex, Inc.
Additionally, subsequent to December 31, 1998, the Company has entered
into a verbal agreement with Trimac Transportation, Inc. to acquire a tank
washing facility in Louisiana.
14
<PAGE>
TRI-STATE CHEMEX, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
TRI - STATE CHEMEX, INC.
BALANCE SHEET
DECEMBER 31, 1998
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) ............................ $ 735
Accounts Receivable - net (Notes 1 and 2) ..................... 20,504
Inventory ..................................................... 4,650
--------
Total Current Assets ........................................ 25,889
PROPERTY AND EQUIPMENT (NOTE 1):
Furniture & Fixtures .......................................... 8,639
Machinery and Equipment ....................................... 45,622
Vehicles ...................................................... 21,317
Less: Accumulated Depreciation ................................ (75,578)
--------
Total Property and Equipment ................................ --
OTHER ASSETS
Security Deposits ............................................. 1,000
--------
Total Other Assets .......................................... 1,000
--------
TOTAL ASSETS .................................................. $ 26,889
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ......................... $ 15,161
Advance From Shareholder (Note 3) ............................. 4,346
Payroll Taxes Payable ......................................... 4,708
Sales Taxes Payable ........................................... 571
--------
Total Current Liabilities ................................... 24,786
LONG - TERM LIABILITIES: ......................................... --
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Common Stock - no par value
Authorized 1,000 shares
Issued and Outstanding 2 shares ............................. 100
Additional Paid in Capital .................................... --
Retained Earnings ............................................. 2,003
--------
Total Shareholders' Equity .................................. 2,103
========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $ 26,889
========
<PAGE>
TRI - STATE CHEMEX, INC.
STATEMENT OF OPERATIONS
DECEMBER 31, 1998
(Unaudited)
NET SALES ................................................... $152,443
--------
Total Sales ............................................ 152,443
COST OF GOODS SOLD .......................................... 40,763
--------
Total Cost of Goods Sold ............................... 40,763
--------
GROSS PROFIT ................................................ 111,680
--------
OPERATING EXPENSES
Salaries and Related Expenses .......................... 13,500
Auto/Truck Expenses .................................... 14,286
Bad Debt .............................................. 20,563
Bank Fees .............................................. 1,131
Insurance ............................................. 5,940
Miscellaneous .......................................... 2,009
Office Expenses ....................................... 3,982
Professional Fees ...................................... 3,025
Rent - Office .......................................... 8,850
Repairs and Maintenance ................................ 189
Taxes and Licenses ..................................... 2,338
Telephone and Utilities ................................ 5,807
--------
Total Operating Expenses ............................... 81,620
--------
EARNINGS FROM OPERATIONS
BEFORE OTHER EXPENSES .................................... 30,060
OTHER EXPENSES
Interest Expense ......................................... 264
--------
Total Other Expenses ................................... 264
========
NET INCOME ............................................... $ 29,796
========
<PAGE>
TRI - STATE CHEMEX, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
DECEMBER 31, 1997 COMMON PAID IN RETAINED SHAREHOLDERS'
TO DECEMBER 31, 1998 STOCK CAPITAL EARNINGS EQUITY
- ------------------------------- -------- ------------ -------- --------
<S> <C> <C> <C> <C>
December 31, 1997 ............. $ 100 $ -- $ (3,420) $ (3,320)
-------- ------------ -------- --------
Net Income at December 31, 1998 -- -- 29,796 29,796
Distribution to Shareholder ... -- -- (24,373) (24,373)
-------- ------------ -------- --------
Total Shareholders' Equity
As Of December 31, 1998 ....... $ 100 $ -- $ 2,003 $ 2,103
======== ============ ======== ========
</TABLE>
<PAGE>
TRI - STATE CHEMEX, INC.
STATEMENT OF CASH FLOWS
DECEMBER 31, 1998
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ...................................................... $ 29,796
Adjustments To Reconcile Net Income To Net Cash
Used By Operating Activities:
Distribution to Shareholder ................................... (24,373)
(Increase)/Decrease in Accounts Receivable .................... (12,859)
(Increase)/Decrease in Inventory .............................. 475
Increase/(Decrease) in Accounts Payable and Accrued Expenses .. 13,899
Increase/(Decrease) in Payroll Taxes Payable .................. 3,190
Increase/(Decrease) in Sales Tax Payable ...................... (272)
--------
Total Adjustments ............................................. (19,940)
--------
Net Cash Provided By Operating Activities ....................... 9,856
CASH FLOWS FROM INVESTING ACTIVITIES ............................... --
--------
Net Cash Used By Investing Activities ........................... --
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(Decrease) in Advance From Shareholder ............... (10,133)
--------
Net Cash Used By Financing Activities ........................... (10,133)
Net Decrease in Cash ............................................ (277)
CASH AT THE BEGINNING OF THE YEAR .................................. 1,012
--------
CASH AT THE END OF THE YEAR ........................................ $ 735
========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the year for:
Interest .................................................... $ 264
Income Taxes ............................................... $ --
<PAGE>
TRI-STATE CHEMEX, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Tri-State Chemex, Inc. (the Company), incorporated as a Rhode Island
corporation and commenced operations on July 9, 1987. The Company is
engaged in the business of sales and service of truck washing
equipment to the trucking industry (large fleet operations).
A) Cash and Cash Equivalents
At December 31, 1998, the Company has $735 in cash located in
non-interest bearing accounts.
B) Accounts Receivable
The Company reserves for uncollectable accounts through an allowance
for doubtful accounts.
C) Property and Equipment
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated by using the straight-line
method for financial reporting purposes. The recovery
classifications for these assets are listed as follows:
YEARS
-----
COMPUTER EQUIPMENT 3
OFFICE EQUIPMENT 3
FURNITURE AND FIXTURES 7
Expenditures for maintenance and repairs are charged against income
as incurred and major improvements are capitalized.
D) Income Taxes
The Company has elected to be taxed under the provision of
Subchapter S of the Internal Revenue code. Under those provisions,
the Company does not pay federal corporate income taxes on its
taxable income and is not allowed a net operating loss carryover or
carry-back as a deduction. Instead, the stockholders are liable for
individual federal income taxes on their respective shares of income
and include their respective shares of the Company's net operating
loss on their individual income tax returns.
<PAGE>
TRI-STATE CHEMEX, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
E) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an
ongoing basis. An impairment loss would be deemed necessary when the
estimated non-discounted future cash flows are less than the
carrying net amount of the asset. If an asset deemed to be impaired,
the asset's recorded value would be reduced to fair market value. In
determining the amount of the charge to be recorded, the following
methods would be utilized to determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on valuation techniques.
At December 31, 1998, no impairment existed.
F) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent asset and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
G) Comprehensive Income
There were no items of other comprehensive income in 1998, and,
thus, net income is equal to comprehensive income.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consists of the following:
December 31,
1998
--------
Accounts Receivable ........... $ 41,157
Allowance for Doubtful Accounts (20,653)
--------
Net Accounts Receivable ....... $ 20,504
========
<PAGE>
TRI-STATE CHEMEX, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - ADVANCE FROM SHAREHOLDER:
The Company's shareholder has advanced monies to the Company over
time. At December 31, the shareholder was owed $4,346 which is
payable upon demand.
NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company leases a warehouse facility located in Johnston, Rhode
Island under a month to month lease. The expense under this month to
month lease is $975 per month.
NOTE 5 - SUBSEQUENT EVENTS:
During February 1999, the Company was acquired by Fleetclean
Systems, Inc. in a transaction accounted for as a purchase.
<PAGE>
FLEETCLEAN SYSTEMS, INC.
BALANCE SHEETS-SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash ...................................................... $ 1,672 $ 641
Accounts receivable, trade ................................ 168,152 119,310
Inventories ............................................... 212,526 149,719
Deferred tax account ...................................... 22,421 2,263
Prepaid expenses .......................................... 50,479 54,847
----------- -----------
455,250 326,780
----------- -----------
PROPERTY AND EQUIPMENT
Land ...................................................... 35,000 10,000
Building .................................................. 520,120 96,105
Machinery and equipment ................................... 935,304 502,496
Transportation equipment .................................. 356,296 254,178
Furniture and equipment ................................... 37,208 34,108
Leasehold improvements .................................... 3,012 3,012
----------- -----------
1,886,940 899,899
Less accumulated depreciation ............................. 517,015 401,860
----------- -----------
1,369,925 498,039
----------- -----------
OTHER
Goodwill, net of amortization of $9,056 .................. 194,807
Deposits ................................................. 4,802 460
----------- -----------
199,609 460
----------- -----------
$ 2,024,784 $ 825,279
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ..................... $ 365,439 $ 203,483
Current maturities of capital lease obligation ............ 32,676
Current maturities of long-term debt ...................... 225,560 104,896
----------- -----------
623,675 308.379
----------- -----------
LONG-TERM LIABILITIES
Deferred income tax ....................................... 28,883 8,359
Long-term portion of capital lease obligation ............. 384,441
Long-term debt, net of current maturities ................. 360,754 219,138
----------- -----------
774,078 227,497
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares authorized;
8,507,872 and 4,534,758 shares issued and outstanding
at 1999 and 1998, respectively ........................ 85,079 45,348
Paid in capital ........................................... 764,388 241,789
Retained earnings(deficiency) ............................. (222,436) 2,266
----------- -----------
627,031 289,403
----------- -----------
$ 2,024,784 $ 825,279
=========== ===========
</TABLE>
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS(DEFICIENCY)
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE NINE THREE THREE
MONTHS MONTHS MONTHS MONTHS
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues ............................ $ 780,449 $ 792,007 $ 238,374 $ 209,645
Cost of revenues .................... 163,689 175,494 64,734 41,637
--------- --------- --------- ---------
Gross profit ........................ 616,760 616,513 173,640 168,008
--------- --------- --------- ---------
Selling, general and administrative
Salary and related benefits .... 393,146 305,334 179,205 109,454
Insurance ...................... 51,699 40,376 21,917 12,894
Professional fees .............. 96,382 21,648 80,775 8,771
Transportation costs ........... 38,754 37,648 13,586 14,343
Advertising .................... 4,895 962 3,670 17
Office ......................... 63,060 56,588 40,357 31,893
Rent ........................... 12,160 3,385 1,860 1,885
Travel and entertainment ....... 32,374 31,973 9,884 8,734
Telephone ...................... 16,679 12,421 6,349 3,678
Depreciation and amortization .. 111,629 82,500 38,993 27,735
Utilities ...................... 4,341 2,572 2,466 2,191
Interest ....................... 46,889 33,493 23,346 13,204
--------- --------- --------- ---------
872,008 628,900 422,408 234,799
--------- --------- --------- ---------
Losses from operations .............. (255,248) (12,387) (248,768) (66,791)
Other income ........................ 16,377 428 12,488 135
--------- --------- --------- ---------
Losses before income taxes .......... (238,871) (11,959) (236,280) (66,656)
Provision for income taxes .......... - - - -
--------- --------- --------- ---------
Net losses .......................... (238,871) (11,959) (236,280) (66,656)
--------- --------- --------- ---------
Retained earnings, beginning ........ 16,435 14,225 13,844 64,390
--------- --------- --------- ---------
Retained earnings(deficiency), ending $(222,436) $ 2,266 $(222,436) $ 2,266
========= ========= ========= =========
Loss per common share
Basic .......................... $ (.04) $(NIL) $ (.03) $ (.02)
Diluted ........................ $ (.04) $(NIL) $ (.03) $ (.02)
</TABLE>
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(SHARES) ADDITIONAL RETAINED TOTAL
COMMON COMMON PAID IN EARNINGS STOCKHOLDERS'
STOCK STOCK CAPITAL (DEFICIENCY) EQUITY
=====================================================================
<S> <C> <C> <C> <C> <C>
January 1, 1999 ............. 4,736,758 $ 47,367 $ 368,091 $ 16,435 $ 431,893
---------- ---------- ---------- ---------- ----------
Issuance of common stock:
Acquisition ............ 300,000 3,000 147,000 150,000
Debt retirement ........ 1,493,659 14,937 135,063 150,000
Cash ................... 400,000 4,000 96,000 100,000
Services ............... 1,577,455 15,775 110,421 126,196
Syndication costs ........... (92,187) (92,187)
Net loss for the period ..... (238,871) (238,871)
---------- ---------- ---------- ---------- ----------
Total shareholders' equity
As of September 30, 1999 8,507,872 $ 85,079 $ 764,388 $ (222,436) $ 627,031
========== ========== ========== ========== ==========
January 1, 1998 ............. 3,964,400 $ 39,644 $ 217,802 $ 14,225 $ 271,671
---------- ---------- ---------- ---------- ----------
Issuance of common stock:
Cash .................... 242,858 2,429 77,571 80,000
Debt retirement ......... 62,500 625 61,875 62,500
Services ................ 265,000 2,650 71,850 74,500
Syndication costs ........... (187,309) (187,309)
Net loss for the period ..... (11,959) (11,959)
---------- ---------- ---------- ---------- ----------
Total shareholders' equity
As of September 30, 1998 4,534,758 $ 45,348 $ 241,789 $ 2,266 $ 289,403
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
----------- ------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Collections from customers ............................... $ 746,014 $ 779,642 $ 209,254 $ 245,675
Cash paid to suppliers and employees ..................... (633,052) (688,324) (118,241) (295,253)
Interest paid ............................................ (46,889) (33,493) (23,346) (13,204)
--------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 66,073 57,825 67,667 (62,782)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business ................................... (100,000)
Purchase of property and equipment ........................ (345,547) (96,414) (296,756) (39,518)
Other ..................................................... (3,042) 15,551
--------- --------- --------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES ....................... (448,589) (80,863) (296,756) (39,518)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable ............................... 328,769 295,040 265,566 99,749
Repayment of notes payable ................................ (66,081) (346,261) (46,699) (43,399)
Repayment of capital lease obligation ..................... (32,883) (25,114) (7,769)
Payment of syndication costs .............................. (5,300)
Sale of common stock ...................................... 100,000 80,000 50,000
--------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................... 329,805 23,479 193,753 98,581
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH ............................... (52,711) 441 (35,336) (3,719)
CASH AT BEGINNING OF YEAR ..................................... 54,383 200 37,008 4,360
--------- --------- --------- ---------
CASH AT END OF YEAR ........................................... $ 1,672 $ 641 $ 1,672 $ 641
========= ========= ========= =========
RECONCILIATION OF NET LOSSES TO NET CASH PROVIDED (USED) BY
OPERATIONS
Net losses .................................................... $(238,871) $ (11,959) $(236,280) $ (66,656)
Adjustments to reconcile net income to net cash provided (used)
By operating activities
Depreciation and amortization ..................... 111,629 82,500 38,993 27,735
Services paid using common stock .................. 126,196 126,193
(Increase) decrease in:
Accounts receivable ............................... (34,435) (12,365) (29,120) 36,030
Inventories ....................................... (79,815) (59,473) (25,397) (26,529)
Prepaid expenses .................................. (32,386) (33,769) (16,715) (17,050)
Increase (decrease) in:
Accounts payable and accrued expenses ............. 213,755 92,891 (209,993) (16,312)
--------- --------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES .............. $ 66,073 $ 57,825 $ 67,667 $ (62,782)
========= ========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the periods for:
Property and equipment ................................ $ 345,547 $ 96,414 $ 296,756 $ 39,518
Interest .............................................. $ 46,889 $ 33,493 $ 23,346 $ 13,204
Supplemental Schedule on Non-Cash Activities:
Acquisition:
Assets acquired ........................................... $ 46,638
Value of common stock issued .............................. $ 150,000
Value of common stock issued for services ..................... $ 218,383 $ 182,009 $ 126,196 $ 74,500
Conversion of note payable to common stock .................... $ 150,000 $ 80,000 $ 62,500
Capital lease obligation incurred for property ................ $ 450,000
</TABLE>
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 1. GENERAL
The unaudited financial statements included herein for the Company for the nine
months ended September 30, 1999 and 1998 have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange Commission
and include all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation. Certain information and footnote
disclosures required by generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These financial
statements should be read in conjunction with the audited financial statements
and related notes thereto included with this filing for the annual periods ended
December 31, 1998 and 1997.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
NOTE HOLDER MATURITY DATE INTEREST RATE 1999 1998 PURPOSE
----------- ------------- ------------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Citizens Bank ...... 02/09/00 2% over prime 2,792 10,027 1996 truck
Citizens Bank ...... 02/09/00 2% over prime 2,792 10,027 1996 truck
Citizens Bank ...... 05/10/99 9.75% -0- 3,770 1995 truck
Citizens Bank ...... 03/15/99 8.49% -0- 3,116 1995 truck
Associated Comm .... 05/31/00 10.50% 11,521 26,884 UD Box Van
Associated Comm .... 06/18/00 10.50% 8,728 20,365 95 UD Flat
Magic Transportation 03/31/99 9% -0- 25,000 Working Capital
Penelope Banks ..... 03/31/99 9% -0- 12,500 Working Capital
Case Credit ........ 08/10/03 10.6% 26,898 40,783 '99 Ford Truck
Case Credit ........ 10/06/03 9.6% 91,391 -0- '99 KW Trucks
1st Liberty National 09/25/03 3% over prime 84,091 100,000 Working Capital
1st Liberty National 09/04/08 9.875% 67,142 71,562 Land / Building
1st Liberty National 01/26/00 3% over prime 100,000 -0- Working capital
Ken Phillips ....... 02/01/00 10% 35,863 -0- Working capital
Rothman ............ 04/01/03 8% 50,000 -0- Convertible debenture
Granite Financial .. 08/27/04 12% 105,096 -0- Equipment
------- -------
</TABLE>
Total Debt .......... $ 586,314 $ 324,034
Less Current Portion (225,560) (104,896)
--------- ---------
Net Long - Term Debt $ 360,754 $ 219,138
========= =========
All notes are personally guaranteed by the President of the Company.
During 1998, certain note holders exchanged $62,500 of their debt for
62,500 shares of the Company's common stock. For each dollar converted,
the individuals received one share of the Company's common stock. During
1999, a note holder converted $150,000 his debt for 1,493,659 shares of
the Company's common stock, valued at approximately $.10 a share.
For the periods ending September 30, 2000, 2001, 2002, 2003 and 2004 the
principal repayments are $225,560, $71,151, $79,632, $136,658 and $73,313,
respectively.
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS(continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 3. COMMITMENTS AND CONTINGENCIES
The Company currently leases facilities located in Rhode Island,
North Carolina and Indiana on a month-to-month basis. The total
monthly rental payments are $1,450 and is terminable upon thirty
days notice. Total rent expense for the nine months ended September
30, 1999 and 1998 is $22,160 and $3,385.
On February 28, 1999, the Company entered into a five year lease
purchase with a corporation for the Hahnville, Louisiana tank wash
facility. The lease is valued at $450,000 and included in property
and equipment(land-$25,000, building-$425,000). The minimum future
lease payments and present value of the net minimum lease payments
are as follows:
YEAR ENDED SEPTEMBER 30
-----------------------
2000 ................................ $ 40,000
2001 ................................ 60,000
2002 ................................ 60,000
2003 ................................ 60,000
2004 ................................ 310,940
---------
Total minimum lease payments ........ 530,940
Less imputed interest ............... (113,823)
---------
Present value of net minimum lease payments 417,117
Current maturities of capital lease obligations ..... (32,676)
Long-term capital lease obligations ................. $ 384,441
=========
Note 4. SHAREHOLDERS' WARRANTS
At September 30, 1999, the Company's outstanding warrants are as follows:
SHAREHOLDER NUMBER OF WARRANTS EXPIRATION DATE EXERCISE PRICE
- ----------- ------------------ --------------- --------------
Kenneth Phillips 100,000 December, 2001 $ 1.00
Gary Bryant .... 400,000 June, 2001 $ .15
Ashok Singhal .. 25,000 September, 2000 $ .50
A. L. Clifford . 25,000 September, 2000 $ 2.00
C. Burger ...... 25,000 September, 2000 $ 2.00
S. Knickerhm ... 12,500 September, 2000 $ 2.00
Note 5. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS FROM OPERATIONS
The following table sets forth certain operating information regarding the
company for the nine and three month periods ended September 30, 1999 and 1998
NINE MONTHS-1999 NINE MONTHS-1998
Revenues ................. $ 780,449 $ 792,007
--------- ---------
Cost of Revenues ......... 163,689 175,494
--------- ---------
Net losses ............... $(255,248) $ (12,387)
========= =========
THREE MONTHS THREE MONTHS
Revenues ................. $ 238,374 $ 209,645
--------- ---------
Cost of Revenues.......... 64,734 41,637
--------- ---------
Net losses ............... $(248,768) $ (66,791)
========= =========
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS(continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 5. MANAGEMENT'S DISCUSSION AND ANALYSIS(CONTINUED)
The following summary table presents comparative cash flows of the Company for
the nine month periods ended September 30, 1999 and 1998:
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
Net cash provided from operations ... $ 66,073 $ 57,825
--------- ---------
Net cash used in investing activities $(448,589) $ (80,863)
--------- ---------
Net cash provided by financing
activities .......................... $ 329,805 $ 23,479
--------- ---------
Cash provided from operating activities for the nines ended September 30, 1999
was $66,073 as compared to $57,825 for the same period 1998. The primary
components of the cash increase were a reduction in the cost of chemicals
purchased and the emphasis of higher gross profit sales products to tank washing
facilities.
Cash used in investing activities for the nine months ended September 30, 1999
was $ 448,589 as compared to $80,863 in the same period 1998. The increase is
due primarily to the acquisition of Tri-State Chemex, Inc. ($100,000) and
equipment purchased for the Hahnville Tank Wash ($243,429).
The increase of cash from financing activities was from a combination of
additional bank debt, financing of equipment, sale of common stock. and issuance
of convertible debt.
On September 30, 1999 the company had a net cash balance of $ 1,672, and a net
working capital of deficiency of $(168,359) as compared with net working capital
of $18,401 on September 30, 1998. The working capital deficiency for 1999 is
attributable to increases in short term debt. The Company intends to refinance
all current liabilities and certain long-term debt from the proceeds of a
twenty-three year Rural Development Loan of $1,100,000. The application for this
long-term debt is being processed with the federal government and the funding
date is to occur in January 2000. Additionally, cash flow from the Hahnville
tank wash has commenced operations and is selling tank wash and light
maintenance services to the trucking industry.
The increase in assets from $825,279 on September 30, 1998 to $2,024,784 on
September 30, 1999 is principally due to the acquisition of the assets of
Tri-State Chemex, Inc, and the purchase of the Hahnville tank wash facility,
along with the equipment improvements at that facility. Transportation equipment
increased $102,118 due to the purchase of two commercial trucks in October,
1998.
During 1999, the Company financed its acquisitions through short-term bank debt,
long-term equipment financing, issuance of convertible debt and a sixty month
lease purchase for the Louisiana tank wash facility. The tank wash acquisition
was accounted for as a $450,000 capital lease and, accordingly, a significant
capital lease obligation was recorded. Footnote 3 to these financial statements
provides for the disclosure of the details of this capital lease transaction.
Footnote 2 to these financial statements provides for the disclosure of the
details of the Company's borrowings.
The increase in shareholders' equity for the nine months ended September 30,
1999 is due to the sale of common stock for $100,000(400,000 shares), the
acquisition of the assets of Tri-State Chemex, Inc. for $150,000(300,000
shares), the payment of salaries and professional fees of $126,196(1,577,455
shares), and debt conversion of $150,000(1,577,455 shares). Shareholders' equity
was reduced by syndication costs of $92,187 related to the sale of common stock
and fund raising activities. The increase in shareholders' equity for the nine
months ended September 30, 1998 is due to the sale of common stock for
$80,000(242,858 shares), the payment of salaries and professional fees of
$74,500(265,000 shares), and debt conversion of $62,500(62,500 shares).
Shareholders' equity was reduced by syndication costs of $187,309 related to the
sale of common stock and fund raising activities.
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS(continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 5. MANAGEMENT'S DISCUSSION AND ANALYSIS(CONTINUED)
The Company's revenues decreased by $11,558 for the nine month period ended
September 30, 1999 as compared to the nine month period ended September 30,
1998. During the 2nd quarter of 1998 the company sold and installed two drive
through truck wash systems which accounted for the variance in revenues reported
for the 1998 and 1999 periods. For the nine months period ended September 30,
1999 there were no drive through sales. Chemical sales to new customers
increased three percent during the nine month period ended September 30, 1999.
Due to the difference in the sales product mix, cost of revenues, as a
percentage of sales, improved by two percent during the nine month period ended
September 30, 1999 as compared to the nine month period ended September 30,
1998.
During the nine month period ended September 30, 1999 operating expenses totaled
$872,008 as compared to $628,900 for the nine month period ended September 30,
1998, an increase of $243,108. Of the increased amount, $126,196 is attributed
to the non-cash payment of salaries and professional fees. The balance of the
increase is the result of start up expenses at the Hahnville Tank Wash and
increase insurance costs. The primary expense in Hahnville was salaries before
the facility became revenue producing. The Hahnville Tank Wash employees seven
full time persons and operates fifteen hours a day, six days a week.
During the nine month period ended September 30, 1999 the company incurred a net
loss from operations of $255,248 as compared with a net loss of $12,387 for the
the nine month period ended September 30,1998. The primary factors contributing
to the loss in 1999 were the non-cash salary and professional fees charge of
$62,000 and $64,196 respectively. The costs related to raising capital, legal
and accounting continue to increase. Costs related to the acquisition of the
assets and business accounts of Tri-State Chemex, Inc. were higher than
anticipated due to the addition of two new employees, and unforeseen difficulty
in converting that operation into the operating methods of the company. The
start up of Hahnville produced an operating loss of $59,000 through September
30, 1999 and both interest expense and depreciation expenses increased due to
the purchase and financing of new equipment for Hahnville.
The increased costs and resulting losses were the necessary steps in building
the infrastructure for future growth.
Note 6. PRO FORMA FINANCIAL INFORMATION
The following pro forma (unaudited) information assumes the transaction with
Tri-State Chemex, Inc. on January 1, 1998:
(IN THOUSANDS)
FLEETCLEAN TRI-STATE PROFORMA COMBINED
SYSTEMS, INC CHEMEX, INC. ADJUSTMENTS BALANCE
==================================================
Revenues ................ $ 1,028 $ 152 $ 1,180
Cost of sales ........... 225 41 265
Gross profit ............. 803 111 914
Operating expenses ....... 801 82 (21) 862
Income before income taxes 2 29 21 52
Income taxes ............. -- -- -- --
Net income ............... $ 2 $ 29 21 $ 52
==================================================
Net income per share:
Basic ............... $ 0.01
Diluted ............. $ 0.01
A proforma for January 1999 was not prepared as the revenues and expenses of
Tri-State Chemex, Inc. for January 1999 were considered immaterial.
EXHIBIT 6.3
ADDENDUM TO AGREEMENT
This Addendum, entered into this 17th day of September, 1999, hereby
amends, to the extent set forth in this Addendum, the agreement entered into on
July 1, 1996 between FLEETCLEAN SYSTEMS, INC., a Texas corporation ("Company")
and KENNETH A. PHILLIPS, an individual ("Phillips") (the "Agreement").
Notwithstanding anything in the Agreement, the Company and Phillips agree
to modify Section 1 of the Agreement as follows, until the Company's Board of
Directors determines that the Company is financial able to resume payments to
Phillips pursuant to Section 1 of the Agreement, at which time this Addendum
shall terminate:
Employer agrees to pay Employee a salary of $7,000 per month.
Phillips hereby agrees to waive all prior breaches of the Agreement.
Phillips and the Company agree that all payments pursuant to the Agreement,
which have not been paid to date and will not be paid in future pursuant to this
Addendum, are hereby waived, and shall not be accrued.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to the
Agreement to be executed on the day and year set forth above.
FLEETCLEAN SYSTEMS, INC.
By: /s/ JAY G. PHILLIPS
Jay G. Phillips, Director
KENNETH A. PHILLIPS, an individual
/s/ KENNETH A. PHILLIPS
Kenneth A. Phillips
EXHIBIT 10.1
[McMANUS & C0., P.C. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Amended Form 10SB Registration Statement of
our report dated February 15, 1999 on our audit of the financial statements of
Fleetclean Systems, Inc. We also consent to the reference to our firm under the
caption "Experts".
/s/ McManus & Co., P.C.
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
November 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FLEETCLEAN SYSTEMS INC. FOR DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 54,383 1,672
<SECURITIES> 0 0
<RECEIVABLES> 131,888 168,152
<ALLOWANCES> 0 0
<INVENTORY> 125,573 212,526
<CURRENT-ASSETS> 354,187 455,250
<PP&E> 1,052,693 1,886,940
<DEPRECIATION> (414,442) (517,015)
<TOTAL-ASSETS> 993,332 2,024,784
<CURRENT-LIABILITIES> 260,185 623,675
<BONDS> 0 0
0 0
0 0
<COMMON> 47,367 85,079
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 993,332 2,024,784
<SALES> 1,028,952 780,449
<TOTAL-REVENUES> 1,028,952 780,449
<CGS> 224,627 163,689
<TOTAL-COSTS> 752,084 825,119
<OTHER-EXPENSES> (2,362) 16,435
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 47,303 46,889
<INCOME-PRETAX> 2,576 (238,871)
<INCOME-TAX> 366 0
<INCOME-CONTINUING> 2,210 (238,871)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,210 (238,871)
<EPS-BASIC> 0 (.04)
<EPS-DILUTED> 0 (.04)
</TABLE>