U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FLEETCLEAN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 000-27467
TEXAS 76-0196431
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. BOX 727, HWY 834 EAST .7 MILES, HARDIN, TEXAS 77561
(Address of Principal Executive Office) (Zip Code)
409-298-9835
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the 12 months ended December 31, 1999 were $1,103,663
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the average bid and ask price on the OTC Electronic
Bulletin Board on March 31, 2000 was $2,527,716. As of March 31, 2000 registrant
had 12,140,014 shares of Common Stock outstanding.
The registrant is incorporating by reference into Part III of this Form 10-KSB,
certain information contained in the registrant's proxy statement for its 2000
annual meeting of stockholders.
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All references to Fleetclean Systems, Inc. common stock reflect a one for
203.991 forward common stock split in August 1996.
PART I
This annual report contains forward-looking statements. These statements
relate to future events or our future financial performance and involve known
and unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by the forward- looking statements.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these
forward-looking statements. We are under no duty to update any of the forward-
looking statements after the date of this report to conform our prior statements
to actual results.
ITEM 1. DESCRIPTION OF BUSINESS
ORGANIZATION
We were 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, we changed our name to
Fleetclean Systems, Inc.
Until 1992, we operated locally, in the Houston, Texas area. Thereafter,
sales efforts were directed to large national trucking companies. In 1994, we
acquired the assets and business accounts of Chemex Southwestern Inc. and began
to manufacture equipment and chemicals for retail distribution. During 1994, we
opened a distribution warehouse in Statesville, North Carolina. In January 1996,
we 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, we acquired the assets and
ongoing business accounts of Tri-State Chemex Corp of Providence, Rhode Island.
After this transaction, we have 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 our employees
who service specific geographic regions.
RECENT DEVELOPMENTS
We have received preliminary approval of a $1,050,000 Rural Development
Loan through Economic Development Capital, which we expect will be funded in May
2000 with which we intend to fund our ongoing operations and refinance our
liabilities. Economic Development Capital is a corporation in the business of
mortgage financing with experience in the processing of loans with governmental
agencies and other issuers of long-term debt. This Rural Development Loan
application is being reviewed for approval by the United States Department of
Agriculture.
PRODUCTS AND SERVICES
HAND HELD HIGH-PRESSURE TRUCK WASHING SYSTEM
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We manufacture 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. We
know of no federal regulations that restrict our customers from discharging
waste water into municipal sewer systems. Each municipality has specific
requirements for accepting industrial waste water. We offer several different
types of chemicals, depending on the surface of the truck and upon the level of
cleaning required.
We believe our customer base is stable in that we provide washing
equipment to our 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 us, or agrees to pay a
rental fee of $250. The current prices of chemicals are approximately $2.60 to
$7.00 per gallon. Our personnel install the equipment at each customer's
facility, and provide instruction and training. We believe 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.
As of December 31, 1999, we serviced 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 many of these are low volume chemical users. Under historical conditions
which continue to apply in other parts of the country these low volume chemical
users would not be serviced by us. However, due to the close proximity of these
customers to the Rhode Island warehouse, and the fact that we do not provide
equipment for their uses, as they have purchased the equipment, we can continue
to service them, and realize maintenance revenue from these small volume users.
While the total number of customers has increased, the average gallons of
chemical usage, per customer, are lower. The increase in revenue for 1999
compared to 1998 is due to increased chemical sales resulting from the Tri-State
Chemex acquisition. There were no sales of drive through truck wash systems in
1999.
During 1999, we discontinued service to 16 customers. Of these, we 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, to date, we have not been notified that any termination was due to the
failure of the product to perform. During 1999, we gained 16 new chemical
customers whose chemical volume more than exceeds the loss of business during
this period. Historically, we estimate that the chemical business has had an
annual growth rate of 6% to 7%. Of the 168 customers currently served, 39 have
been regular customers for more than 5 years. We are not dependent on a few
major customers for our revenues.
DRIVE THRU TRUCK WASHING SYSTEM
We have 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, we have 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
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systems, when sold, are installed at the customer's maintenance facility,
allowing them to clean their own tractor/trailer combinations on a regular
basis. We sell maintenance and cleaning chemicals on an ongoing basis to the
owners of the drive thru truck wash systems. During 2000, we intend to increase
advertising for this segment of our business.
INTERNAL TANK CLEANING OPERATIONS
Our business has grown primarily within the tank truck industry. As a
result, our management has become familiar with the characteristics and needs of
that industry, which prompted us to enter into "internal" tank cleaning in 1999.
In March 1999, we 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.
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. We
have completed our required permitting and expect no further fees or permits. We
are subject overall to regulation by the DOT, EPA, and OSHA and currently
believe we have complied with all regulatory requirements. As a whole, we are
permitted by the DOT as a hazardous materials carrier. These permits have been
in place since 1993. We meet all DOT requirements and state requirements for
operation of trucks 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, we have a boiler permit from the Louisiana State Fire Marshall.
The Hahnville facility also offers a variety of maintenance and inspection
services to its tank line customers, including oil changes, brake service, minor
tank repairs, and federally mandated DOT HM183 tank inspections.
Since opening for business the third week of August 1999 the Hahnville
facility has seen steady growth in revenue month to month, as shown below. The
facility is expected to begin operating profitably beginning April 2000 as a
result of new contracts with new customers which are expected to double the
number of trailers cleaned each month.
September 1999 Tank Wash Revenue $ 9,727
October 1999 Tank Wash Revenue 20,304
November 1999 Tank Wash Revenue 25,680
December 1999 Tank Wash Revenue 26,796
January 2000 Tank Wash Revenue 30,757
February 2000 Tank wash Revenue 25,500
March 2000 Tank Wash Revenue 33,527
We believe we have complied with all applicable environmental regulations
with respect to our operations. However, due to the nature of our business, we
may become subject to future laws regulating the chemicals used in our
operations.
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As a long-term objective, we intend to open additional tank cleaning
facilities.
We do not employ any processes or operations which are limited by
availability of materials or suppliers, as all components of our 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
We do not have a formal research and development division. Our
expenditures on research and development have 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.
We regard intellectual property rights as essential to our success, and we
rely extensively on trademark rights and confidentiality agreements, between and
amongst our partners, employees and others, to protect our proprietary
interests. We are the proprietor of a service mark on the Fleetclean Systems,
Inc. mark. We do not currently hold any patents on our chemical formulas or on
the components comprising our drive thru washing system.
MARKETING
We have not entered into extensive advertising programs, but have grown
through direct sales efforts, and referrals from satisfied customers. We
currently service 168 customers in 24 states. Although we believe we compete in
a fragmented market with few large competitors, there is no assurance that we
will not in the future compete against larger companies with greater financial
resources.
EMPLOYEES
We currently have 17 full-time employees. No employees are covered by a
collective bargaining agreement. We consider relations with our 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 365 commercial tank cleaning facilities in the country as listed in
the March 2000 issue of "Modern Bulk Transporter" magazine. Of these, 56 are
limited to food grade only, and another 176 are operated by trucking firms
primarily to service their own trucks, leaving only 133 facilities as
independent full service commercial tank washes. Of the 133 independent
facilities, 18 are owned and operated by Philip Services Corporation, which is
the country's largest chain of independent tank cleaning facilities.
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 we believe the local market
does not require such a facility. However certain food products are cleaned in
the Hahnville 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
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owned businesses are being considered as potential acquisition candidates with a
view to developing a national chain. We believe many of these businesses use
antiquated, inefficient methods, and we believe that an opportunity exists 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. In February 2000, we entered into two letters of intent for the
acquisition of two existing tank wash facilities. We are in the process of
performing due diligence on the acquisitions and obtaining financing for the
acquisitions. We can provide no assurance that we will ever enter into
definitive agreements with either of these facilities.
RISK FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business could be
harmed.
WE DEPEND ON KEY PERSONNEL.
Our success is substantially dependent on the continued service and
performance of our senior management and key personnel, specifically Kenneth A.
Phillips. We currently have an employment agreement with Mr. Phillips that
expires in July 2000. The loss of the services of Mr. Phillips could have a
negative effect on our business. In addition, we do not maintain a life
insurance policy for Mr. Phillips.
WE ARE EXPANDING OUR BUSINESS, WHICH WILL PLACE A SEVERE STRAIN ON OUR LIMITED
RESOURCES.
We expect to expand our operations, and anticipate that further
significant expansion will be required to address potential growth in our
customer base and market opportunities. This expansion may place a significant
strain on our limited resources. We expect to hire new employees and increase
our infrastructure as part of our expansion.
INTEGRATION OF ACQUISITIONS
Since 1994, we have completed several acquisitions, as described above.
The anticipated benefits from these and future acquisitions, may not be achieved
unless the operations of the acquired business are successfully combined with
ours in a timely manner. The integration of acquisitions requires substantial
attention from management. The diversion of the attention of management, and any
difficulties encountered in the transition process, could have an adverse impact
on our business. In addition, the process of integrating various businesses
could cause the interruption of, or a loss of momentum in, the activities of
some or all of these businesses, which could have an adverse effect on our
business.
WE DEPEND ON OUR INTELLECTUAL PROPERTY.
Our success depends, in part, upon our intellectual property rights,
including our rights related to the development of our chemical formulas and the
design of our drive-thru truck washing systems. We do not have patents on either
of these products. We rely upon a combination of trade secret, nondisclosure and
other contractual arrangements to protect our proprietary rights. We enter into
confidentiality agreements with our employees, and generally require that our
consultants enter into such agreements. There can be no assurance that the steps
taken in this regard will be adequate to deter misappropriation of our
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights. In addition,
although we believe that our services and products do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against us in the future, or that if asserted any
such claim will be successfully defended. A successful claim against us could
materially and adversely affect our business.
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CONCENTRATION OF CONTROL
Our board of directors beneficially own approximately 36 % of our
outstanding common stock. As a result, these stockholders have the ability to
substantially influence and may effectively control, the outcome of corporate
actions requiring stockholder approval, including the election of directors.
This concentration of ownership may have the effect of delaying or preventing a
change in control of Fleetclean Systems.
OUR STOCK PRICE IS VOLATILE.
The market for our securities is highly volatile. The closing price of our
common stock has fluctuated widely. The stock markets have in general
experienced extreme stock price volatility. It is likely that the price of our
common stock will continue to fluctuate widely in the future.
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. Our common stock may be
subject to the penny stock rules, and accordingly, investors in our common stock
may find it difficult to sell their shares in the future, if at all.
ITEM 2. DESCRIPTION OF PROPERTY
HARDEN, TEXAS. We are purchasing 3.3 acres in Hardin, Texas which serves
as corporate headquarters and our primary manufacturing facility, with total of
5,500 square feet of office, manufacturing, and warehouse space. The current
mortgage balance is approximately $65,964. We entered into a note payable in
September 1998, which provides for monthly payments of $941 for 120 months.
HAHNVILLE, LOUISIANA. We have 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 purchase price on the property is $450,000
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 $250,000. Payments began June 1, 1999.
We rent on a month-to-month basis small warehouses in Statesville, North
Carolina; Providence, Rhode Island; and Warsaw, Indiana at a total monthly
rental of $1,500.
We believe our present facilities are adequate for our current operations,
and that our properties are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
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We are 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. We are seeking damages,
reimbursement of expenses, and enforcement of the non-compete agreement. In
August 1999, the co-conspirator settled with us for $17,500 cash and a four year
non-compete agreement, plus cooperation with us in pursuing our claim against
the original defendant. In 1996, the defendant countersued us for wrongful
termination and for unspecified damages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER 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
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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
Fourth Quarter.............................................. .17 .035
On April 10, 2000, the last bid price of our common stock as reported by
the OTC Electronic Bulletin Board was $.35. We believe that as of March 24,
2000, there were approximately 405 record owners of our common stock. It is our
present policy not to pay cash dividends and to retain future earnings to
support our growth. Any payment of cash dividends in the future will be
dependent upon the amount of funds legally available therefor, our earnings,
financial condition, capital requirements and other factors that the board of
directors may deem relevant. We have not paid any dividends during the last two
fiscal years and do not anticipate paying any cash dividends in the foreseeable
future.
RECENT SALES OF UNREGISTERED SECURITIES
In February 1999, we 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 notice. A total of 2,784,135 shares were issued on conversion of the
note. In February 1999, we issued 200,000 shares to one non-affiliate for cash
consideration of $50,000. In March 1999, we 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. We believe the securities issued above were
exempt from registration pursuant to Rule 504 and Section 4(2) of the Securities
Act.
In June 1999, we issued a two-year option to purchase 400,000 shares of
common stock at an exercise price of $.15 per share, provided the bid price of
our common stock exceeds $1.00, to an accredited investor. The investor received
the option for services rendered in connection with investor relations services.
In July 1999, we 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. We believe the above transactions were
exempt from
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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.
There were no underwritten offerings employed in connection with the sales
and issuances of the unregistered securities in any of the transactions set
forth above.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
You must read the following discussion of the results of the operations
and financial condition of Fleetclean Systems in conjunction with our
consolidated financial statements, including the notes included elsewhere in
this Form 10-KSB filing. Historical results are not necessarily an indication of
trends in operating results for any future period.
We are a national retail distributor of truck washing equipment and
chemicals to operators of large trucking fleets. In 1994, we acquired the assets
and business accounts of Chemex Southwestern Inc. and began to manufacture
equipment and chemicals for retail distribution. During 1994, we opened a
distribution warehouse in Statesville, North Carolina. In January 1996, we
acquired the Kentucky operations, including a distribution warehouse, and
customer accounts of Fleetcleaning Supply Company, Inc. In February 1999, we
acquired the assets and ongoing business accounts of Tri-State Chemex Corp of
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 our employees who service specific geographic regions.
We generate revenues from: (a) the sales of chemicals for use with our
hand-held truck washing equipment, (b) sales of our drive-thru truck washing
system, and (c) from our internal tank cleaning operations. We recognize
revenues at the point of sale.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUES
Total revenues increased to $1,103,663 for the year ended December 30,
1999 compared with $1,028,932 for the year ended December 30, 1998. The increase
of 7% was attributable to increased chemical sales and internal tank cleaning
revenues from the Hahnville facility from September 1999 to December 1999.
COST OF GOODS SOLD
For the year ended December 30, 1999, cost of goods sold increased to
$293,344 from $224,627 during the year ended December 30, 1998. The increase of
31% was primarily attributable to increased direct labor and associated costs at
the Hahnville facility. Our gross margins declined for the year ended December
30, 1999 to 73% from 78% for the year ended December 30, 1998. The decline in
gross margins was due to the lower margins received from our internal tank
washing revenues in the Hahnville facility.
GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended December 30, 1999, general and administrative expenses
increased to $1,221,949 from $799,387 during the year ended December 30, 1998.
The increase of 53% was primarily due to:
o an increase in professional fees primarily attributable to our preparation
and filing of our Form 10-SB registration statement;
o the costs associated with the start-up of the Hahnville facility;
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o added interest expense from our increased debt; and
o an increase in the number of personnel employed due to adding seven
additional hires from the Hahnville facility.
OTHER INCOME
For the year ended December 30, 1999, other income was $17,863 compared to
other expenses of $2,362 for the year ended December 30, 1998. The increase in
other income was primarily attributable to a payment in connection with the
settlement of litigation.
NET LOSS
For the year ended December 30, 1999, our net loss was $393,767 compared
to net income of $2,210 for the year ended December 30, 1998. The loss was
primarily attributable to the increase in general and administrative expenses as
described above, which was not offset by increased revenues for the period.
CASH FLOWS
Our operating activities provided net cash of $2,138 in fiscal 1999 and
$182,812 in fiscal 1998. Net cash provided by operating activities in fiscal
1999 declined primarily due to net operating losses for the year as well as a
$202,328 increase in goodwill and other intangible assets, which was offset by
issuing our securities in the aggregate of $349,947 for debt and for services
rendered, and from an increase in our depreciation of $53,305.
Our investing activities used net cash of $757,720 in fiscal 1999 and
$266,262 in fiscal 1998. The increase in our investing activities consisted
primarily of the acquisition of Tri-State Chemex Corp. and of equipment for the
renovation of the Hahnville facility.
Our financing activities provided cash of $702,603 in fiscal 1999 and
$137,633 in fiscal 1998. The increase in fiscal 1999, consisted primarily of a
$547,310 increase in notes payable and a $167,589 advance from an officer of the
company. In addition, our issuances of stock for cash in fiscal 1999 decreased
by $150,199 from fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had cash of $1,404 and negative working
capital of $336,606. We do expect to receive cash flow from operations during
the current fiscal year as the Hahnville facility begins to generate positive
cash flows, which has not occurred to date, but which we expect to occur in
April 2000. We have only operated the Hahnville facility since August 1999, as
such there is no assurance that our estimates will prove to be correct, and that
we will generate positive cash flow from the facility. We estimate our monthly
operating expenditure for fiscal 2000 will be approximately $100,000, although
unexpected expenses may increase our monthly outlays. In addition, we intend to
make additional acquisitions during the year, which will cause increased
expenditures.
As of December 31, 1999, we had notes payable aggregating $925,869 to
financial institutions and entities due through September 2008 at interest rates
ranging from 9.0% to 14.7%. Of these notes payable, $251,640 are due during the
year ended December 31, 2000. In addition, we have lease commitments of
approximately $3,150 for fiscal 2000 and we are currently leasing several other
properties on a month to month basis with aggregate lease payments of $1,500 per
month. We have also been advanced $167,000 from certain officers that are
payable on demand. As of the time of this filing, no demand has been made by
these officers.
10
<PAGE>
We do not have any significant credit facilities available with financial
institutions or other third parties and until we can generate significant cash
flow from operations, we will be dependent upon external sources of financing.
In addition, although we have received advances from our officers in the past,
we do not expect that we will be able to rely on such advances in the future. We
have received preliminary approval for a $1,050,000 twenty-three year Rural
Development Loan at an interest rate of prime plus two percent payable in
monthly installments. Our application is being processed with the federal
government in order to obtain a loan guaranty and we expect the funding date to
occur in May 2000. There is no assurance that we will receive the final loan
guaranty from the federal government.
If we are unable to close on the loan we will be required to curtail our
expansion, seek other external financing, or otherwise bring cash flows into
balance. We believe our current financial situation is due to our rapid growth,
which we believe is important to our ongoing success, but which we are unable to
adequately finance internally. We believe we can sustain our current operations
if we discontinue all growth expenditures, and use all cash flows from
operations to fund our current operations. If we are unable to close the loan,
we will seek additional equity or debt financing in order to continue our
growth. However, there is no assurance that we will be successful in obtaining
such financing on favorable terms, if at all.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements commencing on page F-1 have been audited by
McManus & Co., P.C., independent certified public accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein and are
included in reliance upon such reports given upon the authority of said firm as
experts in auditing and accounting.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE>
PART III
ITEMS 9 TO 12 INCLUSIVE.
These items have been omitted in accordance with the general instructions
to Form 10-KSB. Prior to April 29, 2000, the company will file a definitive
proxy statement or information statement that will involve the election of
directors. The information required by these items will be included in such
proxy statement or information statement and are incorporated by reference in
this annual report.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of the annual report:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 3.1(1) Articles of Incorporation of Fleetclean Systems, Inc.
Exhibit 3.2(1) Amended and Restated Bylaws of Fleetclean Systems, Inc.
Exhibit 4.1(1) Common Stock Certificate of Fleetclean Systems, Inc.
Exhibit 10.1(1) Kenneth A. Phillips Employment Agreement
Exhibit 10.2(1) Addendum to Kenneth A. Phillips Employment Agreement
Exhibit 10.3(1) Lease/Purchase Agreement
Exhibit 10.4(1) Economic Development Capital Letter
Exhibit 23.1 Consent of McManus & Co., P.C.
Exhibit 27 Financial Data Schedule
- --------------------
(1) Filed previously.
(b) There have been no reports filed on Form 8-K.
12
<PAGE>
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Fleetclean Systems, Inc.
By: /S/ KENNETH A. PHILLIPS .
Kenneth A. Philips, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/ KENNETH A. PHILLIPS Chairman of the Board and April 14, 2000
Kenneth A. Philips President
/s/ JAY G. PHILLIPS Director and Vice-President April 14, 2000
Jay G. Phillips Customer Service
/s/ RICHARD R. ROYALL Director April 14, 2000
Richard R. Royall
13
<PAGE>
________________________________________________________________________________
FLEETCLEAN SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999
________________________________________________________________________________
McMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY 07950
<PAGE>
FLEETCLEAN SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
Page
----
Independent Accountant's Report ........................................... 1
Balance Sheets ............................................................ 2-3
Statements of Operations and Retained Earnings ............................ 4
Statements of Changes in Shareholders' Equity ............................. 5
Statements of Cash Flows .................................................. 6
Notes to the Financial Statements ......................................... 7-18
i
<PAGE>
[McMANUS & CO., 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, 1999 and 1998 and the related statements of operations and
retained earnings, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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, 1999 and 1998 and the results of its operations, stockholders'
equity, and its cash flow for the years then ended, in conformity with generally
accepted accounting principles.
McManus & Co., P.C.
Morris Plains, New Jersey
April 6, 2000
<PAGE>
FLEETCLEAN SYSTEMS, INC.
BALANCE SHEETS
ASSETS
DECEMBER 31,
1999 1998
---------- ----------
CURRENT ASSETS:
Cash ........................................... $ 1,404 $ 54,383
Accounts Receivable (Note 2) ................... 159,654 131,888
Employee Advances .............................. 4,789 1,829
Inventory (Note 1) ............................. 151,722 125,573
Prepaid Expenses ............................... 14,054 18,093
Deferred Tax Asset (Note 11) ................... 22,421 22,421
---------- ----------
Total Current Assets ........................ 354,044 354,187
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT: (NOTES 1 & 3) ..... 1,391,988 638,251
OTHER ASSETS:
Other Assets ................................... 2,345 460
Intangible Asset (Note 9) ...................... 191,270 434
---------- ----------
Total Other Assets .......................... 193,615 894
---------- ----------
TOTAL ASSETS ...................................... $1,939,647 $ 993,332
========== ==========
See accompanying notes to financial statements.
2
<PAGE>
FLEETCLEAN SYSTEMS, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
1999 1998
---------- ---------
CURRENT LIABILITIES:
Accounts Payable ................................. $ 181,995 $ 98,024
Advance From Officer (Note 6) .................... 167,859 --
Notes Payable (Note 4) ........................... 251,640 126,566
Payroll Taxes Payable ............................ 4,904 916
Insurance Payable ................................ 8,405 --
Sales Tax Payable ................................ 15,581 6,193
Accrued Expenses ................................. 60,266 28,486
---------- ---------
Total Current Liabilities ..................... 690,650 260,185
---------- ---------
LONG-TERM LIABILITIES:
Deferred Tax Liability (Note 11) ................. 28,882 28,882
Notes Payable - Net of Current Portion (Note 4) .. 674,229 272,372
---------- ---------
Total Long-Term Liabilities ................... 703,111 301,254
---------- ---------
Total Liabilities ................................ 1,393,761 561,439
---------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7 & 10)
STOCKHOLDERS' EQUITY:
Common Stock - $.01 par value
Authorized 50,000,000 shares
Issued and Outstanding - 10,590,014 & 4,736,758
at 1999 and 1998, respectively .............. 105,900 47,367
Paid In Capital .................................. 817,318 368,091
Retained Earnings ................................ (377,332) 16,435
---------- ---------
Total Stockholders' Equity .................... 545,886 431,893
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $1,939,647 $ 993,332
========== =========
See accompanying notes to financial statements.
3
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
INCOME:
Net Sales ..................................... $ 1,103,663 $ 1,028,952
Less: Cost of Goods Sold ...................... 293,344 224,627
----------- -----------
Gross Profit ............................... 810,319 804,325
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries ...................................... 430,712 376,861
Payroll Taxes ................................. 49,361 30,804
Advertising ................................... 9,464 3,861
Auto Expense .................................. 60,087 56,223
Bad Debts ..................................... 3,499 --
Commissions ................................... -- 1,021
Depreciation and Amortization ................. 165,475 112,170
Dues & Subscriptions .......................... 2,634 664
Entertainment ................................. 984 670
Insurance ..................................... 69,115 52,491
Investor Relations ............................ 21,299 --
Interest Expense .............................. 68,230 47,303
Licenses & Fees ............................... 4,552 1,716
Office Expense ................................ 23,540 9,086
Postage/Freight ............................... 15,830 1,354
Professional Fees ............................. 186,667 29,039
Rent .......................................... 17,010 4,840
Taxes - other ................................. 11,005 6,427
Telephone & Utilities ......................... 36,851 18,630
Trailer Expense ............................... 2,579 3,555
Training ...................................... 4,521 418
Travel ........................................ 38,534 42,254
----------- -----------
Total General and Administrative Expenses .. 1,221,949 799,387
----------- -----------
INCOME/(LOSS) FROM OPERATIONS ................... (411,630) 4,938
OTHER INCOME/(EXPENSE)
Miscellaneous Income - net .................... 23,363 608
Loss on Sale of Asset ......................... (5,500) (2,970)
----------- -----------
Total Other Income ......................... 17,863 (2,362)
NET INCOME/(LOSS) BEFORE INCOME TAXES ........... (393,767) 2,576
Provision For Income Taxes .................... -- 366
----------- -----------
NET INCOME/(LOSS) ............................... (393,767) 2,210
RETAINED EARNINGS/(DEFICIT) BEGINNING OF YEAR ... 16,435 14,225
----------- -----------
RETAINED EARNINGS/(DEFICIT) END OF YEAR ......... $ (377,332) $ 16,435
=========== ===========
Net Income/(Loss) Per Common Share
Basic (Note 1) ................. $ (0.06) $ NIL
Diluted (Note 1) ............... $ (0.06) $ NIL
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
JANUARY 1, 1998 COMMON STOCK PAID IN RETAINED STOCKHOLDERS'
TO DECEMBER 31, 1999 SHARES VALUE CAPITAL EARNINGS EQUITY
- ----------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Stockholders' Equity
As of December 31, 1997 ....................... 3,964,400 $ 39,644 $ 217,802 $ 14,225 $ 271,671
----------- ----------- ----------- ----------- -----------
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 16,435 431,893
Sale of Common Stock .......................... 200,000 2,000 48,000 -- 50,000
Stock Issued for Acquisition of Tri-State ..... 300,000 3,000 147,000 -- 150,000
Sale of Common Stock .......................... 200,000 2,000 48,000 -- 50,000
Conversion of Debt ............................ 2,784,135 27,841 172,159 -- 200,000
Stock Issued For Services Rendered ............ 2,369,121 23,692 126,255 -- 149,947
Syndication Costs ............................. -- -- (92,187) -- (92,187)
Net Income (1999) ............................. (393,767) (393,767)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity
As of December 31, 1999 ....................... 10,590,014 $ 105,900 $ 817,318 $ (377,332) $ 545,886
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
FLEETCLEAN SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income/(Loss) .................................................... $(393,767) $ 2,210
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities:
Stock Issued for Services Rendered ................................ 149,947 --
Stock Issued for Conversion of Debt ............................... 200,000 --
Depreciation and Amortization ..................................... 165,475 112,170
(Increase)/Decrease in Accounts Receivable ........................ (27,766) (26,068)
(Increase)/Decrease in Employee Advances .......................... (2,960) (704)
(Increase)/Decrease in Inventories ................................ (26,149) (35,328)
(Increase)/Decrease in Prepaid Expenses ........................... 4,039 2,985
(Increase)/Decrease in Deferred Public Offering Costs ............. -- 112,988
(Increase)/Decrease in Intangible Assets .......................... (202,328) --
(Increase)/Decrease in Other Assets ............................... (1,885) (260)
(Increase)/Decrease in Deferred Tax Asset ......................... -- (20,158)
Increase/(Decrease) in Accounts Payable ......................... 83,971 13,337
Increase/(Decrease) in Payroll Taxes Payable ................... 3,988 279
Increase/(Decrease) in Insurance Payable ........................ 8,405 --
Increase/(Decrease) in Sales Taxes Payable ..................... 9,388 601
Increase/(Decrease) in Accrued Expenses ......................... 31,780 236
Increase/(Decrease) in Deferred Tax Liability ..................... -- 20,524
--------- ---------
Net Cash Provided/(Used) for Operating Activities .............. 2,138 182,812
--------- ---------
INVESTING ACTIVITIES:
Purchase of Property, Plant, and Equipment ........................ (757,720) (249,208)
Disposal of Property, Plant, and Equipment ........................ -- (17,054)
--------- ---------
Net Cash Provided/(Used) for Investing Activities .............. (757,720) (266,262)
--------- ---------
FINANCING ACTIVITIES:
Increase/(Decrease) in Notes Payable .............................. 526,931 (20,379)
Increase/(Decrease) in Advance From Officer ....................... 167,859 --
Issuance of Common Stock - net .................................... 7,813 158,012
--------- ---------
Net Cash Provided/(Used) by Financing Activities ............... 702,603 137,633
--------- ---------
Net Increase/(Decrease) In Cash ...................................... (52,979) 54,183
Cash Beginning of Year ............................................... 54,383 200
--------- ---------
Cash End of Year ..................................................... $ 1,404 $ 54,383
========= =========
Additional Disclosure of Operating Cash Flow Cash paid during the
period ended December 31,
1999 1998
--------- ---------
Interest Expense ........................................... $ 68,230 $ 47,303
Income Taxes ............................................... $ -- $ (1,267)
Supplemental Disclosures of Non-Cash Investing Transactions
Issuance of Common Stock for Acquisition .......... $ 150,000 $ --
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
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.
During 1999, the Company acquired a truck terminal / internal tank wash
facility in Hahnville, LA under a lease purchase contract.
A) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
B) 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.
C) 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
Transportation Equipment 5 years
Furniture and Fixtures 7 years
Machinery and Equipment 7 years
Tank Cleaning Equipment 7 years
Leasehold Improvements life of lease
Trucks 5 years
Buildings 39 years
7
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
D) 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.
E) 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 less any preferred stock dividends (if
applicable) by the weighted average number of shares of common stock
outstanding plus any dilutive common stock equivalents. The components for
the computations are shown as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Weighted Average Number of
Common Shares Outstanding
Including:
Basic Common Shares ........ 6,817,506 4,229,679
Dilutive Common Shares ..... 7,000,838 4,229,679
F) 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.
G) ADVERTISING
Advertising costs are expensed as incurred. Advertising expenses were
$9,464 and $3,861 for the years ended December 31, 1999 and 1998,
respectively.
8
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
H) 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 net carrying amount of
the asset. If an asset were 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 market value:
1) Quoted market prices in active markets.
2) Estimate based upon prices of similar assets
3) Estimate based upon valuation techniques
As of December 31, 1999 and 1998, no impairment existed
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.
J) RECLASSIFICATION
The Company has reclassified certain balance sheet components for the year
ended December 31, 1998 to facilitate comparison to the year ended
December 31, 1999.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
December 31,
1999 1998
--------------------
Accounts Receivable ........... $162,912 $131,888
Allowance for Doubtful Accounts 3,258 -0-
-------- --------
Net Accounts Receivable ....... $159,054 $131,888
======== ========
9
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 3 - PROPERTY, PLANT, AND EQUIPMENT:
Components of property, plant, and equipment, at December 31, 1999 and
1998 are as follows:
1999 1998
----------- -----------
Demonstration Equipment ................. $ 431,541 $ 381,969
Furniture and Fixtures .................. 37,208 34,108
Machinery and Equipment ................. 259,135 182,688
Leasehold Improvements .................. 3,012 3,012
Land .................................... 170,000 10,000
Building ................................ 374,170 95,120
Tank Cleaning Equipment ................. 338,289 -0-
Transportation Equipment ................ 347,058 345,796
----------- -----------
Total Property, Plant, and Equipment $ 1,960,413 $ 1,052,693
Less: Accumulation Depreciation ......... (568,425) (414,442)
----------- -----------
Net Property, Plant, and Equipment . $ 1,391,988 $ 638,251
=========== ===========
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.
NOTE 4 - LONG -TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AMOUNT
NOTE HOLDER MATURITY DATE INTEREST RATE 1999 1998 PURPOSE
- ------------------------ ------------- ------------- ---------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Citizens Bank .......... 05/10/99 9.75 % -0- 2,232 1995 truck
Citizens Bank .......... 02/09/00 2% over prime 870 8,284 1996 truck
Citizens Bank .......... 02/09/00 2% over prime 870 8,284 1996 truck
E. Snowden ............. 02/15/00 10.0 % 35,000 -0- Working Capital
1st Liberty National ... 04/04/00 11.5 % 100,000 -0- Working Capital
Associated Comm ........ 05/31/00 10.5 % 7,681 23,044 UD Box Van
Associated Comm ........ 06/18/00 10.5 % 5,819 17,456 95 UD Flat
Magic Transportation ... 03/31/99 9.0 % -0- 25,000 Working Capital
Penelope Banks ......... 03/31/99 9.0 % -0- 12,500 Working Capital
Citizens Bank .......... 10/04/02 10.0 % 9,236 -0- Forklift
Case Credit ............ 08/10/03 10.6 % 25,509 30,800 '99 Ford Truck
Case Credit ............ 10/06/03 9.6 % 86,815 104,318 '99 KW Trucks
1st Liberty National ... 09/25/03 3% over prime 79,815 96,527 Working Capital
Trimac Bulk Trans ...... 02/29/04 6.79 % 409,211 -0- Land/Building/Equipment
Granite Financial ...... 08/15/04 14.7 % 99,079 -0- Equipment Lease
1st Liberty National ... 09/04/08 9.875 % 65,964 70,493 Land/Building
--------- ---------
Total Debt .......... $ 925,869 $ 398,938
Less Current Portion (251,640) (126,566)
--------- ---------
Net Long - Term Debt $ 674,229 $ 272,372
========= =========
</TABLE>
Although the notes to M. Transportation and P. Banks were convertible to
the Company's common stock at a rate of one share for each dollar, each
note, accrued interest included, was paid in full during 1999.
10
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 4 - LONG -TERM DEBT: (continued)
During February 1999, in exchange for $200,000, the Company issued to Mr.
Amram Rothman $200,000 total face value 8% Series A Senior Subordinated
Convertible debentures. These debentures were due March 4, 2004 and are
convertible in whole or part at any time at a twenty-five percent (25%)
discount of the bid price for the day per share. By December 31, 1999, the
debentures had been fully converted into 2,784,135 shares of the Company's
common stock.
On February 28, 1999, the Company entered into an agreement with Trimac
Bulk Transportation, Inc. to lease / purchase land and a building in
Hahnville, Louisiana. Commencing June 1, 1999, the Company will make
fifty-seven monthly payments of $5,000 until March 1, 2004. $2,500 of each
payment will be applied to rents whereas the remaining $2,500 shall be
placed in escrow with the Lessor / Seller earning 6.0% interest annually.
Upon expiration of the lease, to be combined with all accumulated monies
being held in escrow, the Company shall make a balloon payment of
approximately $251,000 to satisfy the $450,000 purchase price.
On July 22, 1999, the Company borrowed $100,000 from First Liberty
National Bank bearing an interest rate of 11.0% annually. The maturity
date of this loan is April 4, 2000; having been extended from January 26,
2000. The interest rate has increased from 11.0% to 11.5% with the
extension. The Company is currently negotiating to further extend this
note.
On August 27, 1999, the Company entered into a capital lease agreement
with Granite Financial, Inc. to lease/purchase equipment for use at its
Hahnville, Louisiana site. Sixty lease payments of $2,457.45 are due
monthly until August 2004 with a one-dollar buy out.
In October 1999, the Company borrowed $35,000 from Eugene Snowden bearing
an interest rate of 10.0% annually. The maturity date of payment was
February 20, 2000 where it is now payable upon demand. The Company has
negotiated an additional month to month extension.
All notes are personally guaranteed by the President of the Company.
Principal repayments for each of the next five years are as follows:
2000 $ 251,640
2001 112,076
2002 123,059
2003 116,198
2004 & Thereafter 322,896
---------
Total $ 925,869
=========
11
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 5 - BUSINESS COMBINATIONS:
On February 1, 1999, the Company acquired Tri-State Chemex, Inc. in a
business combination accounted for as a purchase. Tri-State is primarily
in the truck washing business. The Company issued 300,000 shares of its
restricted common stock. The total purchase price for this acquisition was
$250,000. Goodwill in the amount of approximately $203,000 resulted from
this transaction.
NOTE 6 - SHAREHOLDERS' ADVANCES:
During 1999, certain officers advanced the Company approximately $167,000.
These monies were used as working capital and are payable upon demand. No
advances were outstanding at December 31, 1998.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
On February 28, 1999, the Company entered into an agreement with Trimac
Bulk Transportation, Inc. to lease/purchase land and a building in
Hahnville, Louisiana. (see note 4).
The Company currently leases a facility located in Johnson City, Rhode
Island on a month-to-month basis. The monthly rental payment is $900 and
is terminable upon thirty days notice.
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.
The Company currently leases a facility located in Warsaw, Indiana on a
month-to-month basis. The monthly rental payment is $350 and is terminable
upon thirty days notice.
On January 19, 2000, the Company entered into a six-month lease agreement
with Scott Walsh for an apartment located at 52 Carriage Lane in
Destrehan, LA. This non-cancelable lease is payable in monthly
installments of $525.
Future minimum lease payments are summarized as follows:
DECEMBER 31, AMOUNT
----------- -----------
2000 $ 3,150
-----------
Total $ 3,150
===========
12
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES: (continued)
The Company is treating the agreement with Trimac Bulk Transportation,
Inc. as a capital lease and is therefore assuming all liabilities under
long-term debt.
On January 29, 1999, the Company entered into an employment contract with
Neil Stafford for full time employment at its Rhode Island office. The
agreement provides that Mr. Stafford will be compensated $6,000 per month.
Additionally, Mr. Stafford will earn commissions based upon the volume of
chemicals sold in the northeastern United States as well as gross revenues
collected on the sales of machinery. Although this contract expired on
January 28, 2000, Mr. Stafford remains a full-time employee with the
Company.
On May 21, 1999, the Company entered into a three-year agreement with
Waterford Financial, Inc. (Waterford) whereby Waterford will act as the
Company's exclusive investment-banking firm. Waterford will assist the
Company with all financing arrangements with regard to the raising of
capital. Compensation under this agreement will be based upon the type and
amount of funds raised by Waterford. This agreement is terminable by
either party on ninety days notice beginning May 21, 2000.
On May 21, 1999, the Company entered into a three-year financial
consulting agreement with K-2 Financial Corp (K-2). K-2 is to provide
consultation with, but not limited to, mergers and acquisitions, internal
capital structuring, and the placement of new debt and equity issues.
Initial compensation due upon execution of this agreement will be 327,455
shares of the Company's common stock. Additionally, a monthly consulting
fee will be paid to K-2 commencing subsequent to the raising of $500,000
in capital by K-2. This agreement is terminable by either party on ninety
days notice beginning May 21, 2000.
On July 5, 1999, the Company entered into an exclusive employment contract
with Ron Wallace for full-time employment. The agreement provides that Mr.
Wallace be compensated $4,417 monthly. Additionally, Mr. Wallace shall
receive, as a sign on bonus, 50,000 shares of the Company's common stock
and $1,019 in cash. This contract was to expire on July 4, 2001 but has
been terminated by the Company on February 1, 2000. Upon termination of
this contract, Mr. Wallace agreed to a two-year covenant not to compete.
On December 6, 1999, the Company entered into an agreement with Thomas
Pritchard as independent contractor to provide general legal services for
the Company. This agreement will expire on June 6, 2000. As compensation
for this agreement, Mr. Pritchard received 266,666 shares of the Company's
common stock.
On December 6, 1999, the Company entered into agreements with Richard
Royall and Sammy Fleschler as independent contractors to provide
consulting services for the Company. These agreements will expire on June
6, 2000. As compensation for these agreements, Messrs. Royal and Fleschler
each received 262,500 shares of the Company's common stock.
13
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 8 - 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. At
December 31, 1999, each of these notes has either been exercised or repaid
in full.
The Company has issued the following warrants that have since expired:
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.
The Company has issued and outstanding the following warrants which have
not yet been exercised at December 31, 1998:
116,666 stock purchase warrants expiring December 15, 2000. These
warrants are subject to the 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 $.05
per share. Such transactions may occur in whole or in part, but must
never amount to less than 100 shares.
116,666 stock purchase warrants expiring December 15, 2001. These
warrants are subject to the 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 $.05
per share. Such transactions may occur in whole or in part, but must
never amount to less than 100 shares.
116,666 stock purchase warrants expiring December 15, 2002. These
warrants are subject to the 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 $.05
per share. Such transactions may occur in whole or in part, but must
never amount to less than 100 shares.
400,000 stock purchase warrants expiring June 7, 2001. These warrants
are subject to the 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 $.15 per
share. Such transactions may occur in whole or in part, but must never
amount to less than 100 shares. These warrants, however, are not
exercisable until and unless the shares of the Company's Common Stock
trade at a minimum of $1.00 per share as quoted by the OTC Electronic
Bulletin Board or any other nationally recognized exchange.
14
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 8 - WARRANTS: (continued)
25,000 stock purchase warrants expiring September 30, 2000. These
warrants are subject to the 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 $.50
per share. Such transactions may occur in whole or in part, but must
never amount to less than 100 shares.
100,000 stock purchase warrants expiring December 2001. These warrants
are subject to the 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 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 9 - INTANGIBLE ASSETS:
Intangible assets consist of goodwill created during a acquisitions in
1999 and 1994. Goodwill is being amortized using the straight-line method
for a period of fifteen (15) years. Accumulated amortization at December
31, 1999 and 1998 was $12,528 and $66, respectively.
According to the AICPA's SOP 98-5 (see Note 1), the Company will expense
all organization costs as incurred.
NOTE 10 - 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.
NOTE 11 - 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.
15
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 11 - INCOME TAXES: (continued)
A) The effective tax rate for the Company is reconcilable to statutory tax rates
as follows:
December 31,
1999 1998
------------
% %
U.S. Federal Statutory Tax Rate 15 15
U.S. Valuation Difference ..... (15) (-0-)
--- ---
Effective U.S. Tax Rate ....... -0- 15
=== ===
B) Items giving rise to deferred tax assets / liabilities are as follows:
December 31,
1999 1998
-----------------------
Deferred Tax Assets:
Tax Loss Carry-forward ............ $ 156,968 $ 22,421
--------- ---------
Deferred Tax Liability:
Depreciation ...................... 42,948 28,882
--------- ---------
Valuation Allowance .................... 114,020 -0-
--------- ---------
Net Deferred Tax Assets/(Liability) $ (6,461) $ (6,461)
========= =========
C) The Company experienced income tax losses of approximately $408,908;
$26,796; and $107,852 for the years ended December 31, 1999, 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 forward net operating
losses of approximately $25,966; $26,796; and $408,908 which will expire
in 2011, 2013, and 2014, respectively, or until it is completely used;
whichever occurs first.
16
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 12 - EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------- ----------- ---------
<S> <C> <C> <C>
Net Loss ................................ $(393,767)
Basic EPS:
Loss available to common stockholders . (393,767) 6,817,506 $(0.06)
======
Effect of Dilutive Securities:
Warrants .............................. -0- 183,332
--------- ---------
Diluted EPS:
Loss available to common stockholders
and assumed conversions ............. $(393,767) 7,000,838 $(0.06)
========= ========= ======
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------- ----------- ---------
<S> <C> <C> <C>
Net Income .............................. $ 2,210
Basic EPS:
Income available to common stockholders 2,210 4,229,679 $ NIL
======
Effect of Dilutive Securities: .......... -0- -0-
--------- ---------
Diluted EPS:
Income available to common stockholders
and assumed conversions ............. $ 2,210 4,229,679 $ NIL
========= ========= ======
</TABLE>
For the years ended December 31, 1999 and 1998, anti-dilutive securities
totaled 625,000 and 262,500, respectively.
For the period January 1, 2000 to April 2, 2000, there were no
transactions that would have materially changed the number of common
shares or potential common shares outstanding.
NOTE 13 - SUBSEQUENT EVENTS:
Subsequent to December 31, 1999, the Company has signed letters of intent
to acquire two additional tank-washing facilities.
On January 19, 2000, the Company signed a lease agreement with Scott Walsh
to lease an apartment in Destrehan, LA. (see Note 6)
17
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 13 - SUBSEQUENT EVENTS: (continued)
On February 1, 2000, the employment agreement with Mr. Wallace was
terminated whereat a two-year covenant-not-to-compete became effective.
During 1999, the Company applied for a $1,100,000 urban/rural development
loan. The loan is currently being processed by the Economic Capital
Corporation of Plano, Texas.
18
EXHIBIT 23.1
Consent of Independent Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8, file number 333-94089, of our report dated April 6, 2000,
relating to the financial statements of Fleetclean Systems, Inc. appearing in
the Form 10-KSB for the year ended December 31, 1999. We also consent to the
reference to our firm under the caption "Experts" in the Registration Statement.
McManus & Co., P.C.
Morris Plains, New Jersey
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,404
<SECURITIES> 0
<RECEIVABLES> 167,701
<ALLOWANCES> 3,258
<INVENTORY> 151,722
<CURRENT-ASSETS> 354,044
<PP&E> 1,960,413
<DEPRECIATION> 568,425
<TOTAL-ASSETS> 1,939,647
<CURRENT-LIABILITIES> 690,650
<BONDS> 0
0
0
<COMMON> 105,900
<OTHER-SE> 439,986
<TOTAL-LIABILITY-AND-EQUITY> 1,939,647
<SALES> 1,103,663
<TOTAL-REVENUES> 1,121,526
<CGS> 293,344
<TOTAL-COSTS> 2,032,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,230
<INCOME-PRETAX> (393,767)
<INCOME-TAX> 0
<INCOME-CONTINUING> (393,767)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (393,767)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
