UNITED STATES SECURITIES AND EXCHANGE COMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-27467
FLEETCLEAN SYSTEMS, INC.
Exact name of Registrant as specified in is charter
TEXAS 76-0196431
State of Incorporation IRS Employer Identification Number
P.O. BOX 727, HWY 834 EAST .7 MILES
HARDIN, TEXAS 77561
936-298-9835
Address and telephone number of principal executive offices
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common stock of the Registrant outstanding at August 1,
2000 was 15,929,987
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
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FLEETCLEAN SYSTEMS INC
BALANCE SHEETS
ASSETS
JUNE 30 DECEMBER 31
2000 1999
---------- ------------
UNAUDITED AUDITED
<S> <C> <C>
CURRENT ASSETS:
CASH $ 27,008 $ 1,404
ACCOUNTS RECEIVABLE - NET 191,493 159,654
EMPLOYEE ADVANCES 7,108 4,789
INVENTORY 159,640 151,722
PREPAID EXPENSES 54,112 14,054
DEFERRED TAX ASSET 22,421 22,421
---------- ------------
TOTAL CURRENT ASSETS 461,782 354,044
PROPERTY, PLANT, AND EQUIPMENT: - NET 1,415,620 1,391,988
OTHER ASSETS:
OTHER ASSETS 8,020 2,345
INTANGIBLE ASSET - NET 184,539 191,270
---------- ------------
TOTAL OTHER ASSETS 192,559 193,615
---------- ------------
TOTAL ASSETS $2,069,961 $ 1,939,647
========== ============
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2
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FLEETCLEAN SYSTEMS INC
BALANCE SHEETS
LIABIITIES AND STOCKHOLDERS' EQUITY
JUNE 30 DECEMBER 31
2000 1999
---------- ------------
UNAUDITED AUDITED
CURRENT LIABILITIES:
<S> <C> <C>
ACCOUNTS PAYABLE $ 130,565 $ 181,995
ADVANCE FROM OFFICER 176,999 167,859
NOTES PAYABLE 254,328 251,640
PAYROLL TAXES PAYABLE 2,416 4,904
INSURANCE PAYABLE 37,631 8,405
SALES TAX PAYABLE 11,696 15,581
ACCRUED EXPENSES 20,371 60,266
---------- ------------
TOTAL CURRENT LIABILITIES 634,006 690,650
LONG-TERM LIABILITIES:
DEFERRED TAX LIABILITY 28,883 28,882
NOTES PAYABLE - NET OF CURRENT PORTION 680,126 674,229
---------- ------------
TOTAL LONG-TERM LIABILITIES 709,009 703,111
---------- ------------
TOTAL LIABILITIES 1,343,015 1,393,761
---------- ------------
STOCKHOLDERS' EQUITY:
COMMON STOCK - $.01 PAR VALUE
AUTHORIZED 50,000,000 SHARES
ISSUED AND OUTSTANDING - 12,140,014 & 10,590,014
AT 2000 AND 1999, RESPECTIVELY 121,400 105,900
PAID IN CAPITAL 1,111,818 817,318
RETAINED EARNINGS -506,272 -377,332
---------- ------------
TOTAL STOCKHOLDERS' EQUITY 726,946 545,886
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,069,961 $ 1,939,647
========== ============
</TABLE>
3
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FLEETCLEAN SYSTEMS INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
SIX SIX THREE THREE
MONTHS MONTHS MONTHS MONTHS
2000 1999 2000 1999
---------- ---------- ---------- --------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
REVENUES:
<S> <C> <C> <C> <C>
NET SALES $ 702,585 $ 542,076 $ 350,496 $287,935
---------- ---------- ---------- --------
LESS: COST OF GOODS SOLD 194,203 98,956 97,479 52,262
---------- ---------- ---------- --------
GROSS PROFIT 508,382 443,120 253,017 235,673
---------- ---------- ---------- --------
GENERAL AND ADMINISTRATIVE EXPENSES:
SALARIES 224,373 194,598 108,575 90,623
PAYROLL TAXES 25,660 19,343 12,573 11,753
ADVERTISING 8,562 1,225 8,447 821
AUTO EXPENSE 33,792 24,361 16,157 13,447
DEPRECIATION AND AMORTIZATION 83,787 72,636 41,894 37,197
DUES & SUBSCRIPTIONS 787 1,029 187 556
ENTERTAINMENT 156 639 0 230
INSURANCE 42,554 29,782 21,284 16,616
INVESTOR RELATIONS 29,366 5,130 7,503 5,130
INTEREST EXPENSE 52,718 23,543 25,713 11,224
LICENSES & FEES 1,305 1,108 980 873
OFFICE EXPENSE 7,745 4,797 3,203 3,366
POSTAGE/FREIGHT 9,948 6,267 5,817 4,074
PROFESSIONAL FEES 36,730 10,477 16,238 5,485
RENT 11,888 10,300 6,075 6,680
SHOP EXPENSE 15,887 6,508 3,621 3,828
TAXES - OTHER 4,456 2,724 2,115 1,715
TELEPHONE & UTILITIES 32,918 12,203 18,281 7,078
TRAILER EXPENSE 1,187 930 603 558
TRAINING 533 1,147 150 972
TRAVEL 18,772 21,853 10,173 11,955
---------- ---------- ---------- --------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 643,124 450,600 309,589 234,181
---------- ---------- ---------- --------
NET LOSS FROM OPERATIONS -134,742 -7,480 -56,572 1,492
OTHER INCOME/EXPENSE:
MISCELLANEOUS INCOME - NET 1,373 3,889 884 1,922
GAIN ON SALES OF ASSET 4,429 0 2,779 0
---------- ---------- ---------- --------
TOTAL OTHER INCOME 5,802 3,889 3,663 1,922
---------- ---------- ---------- --------
NET LOSS BEFORE INCOME TAXES -128,940 -3,591 -52,909 3,414
PROVISION FOR INCOME TAXES 0 0 0 0
---------- ---------- ---------- --------
NET LOSS -128,940 -3,591 -52,909 3,414
RETAINED EARNINGS/(DEFICIT) BEGINNING OF PERIOD -377,332 16,435 -453,363 9,430
---------- ---------- ---------- --------
RETAINED EARNINGS/(DEFICIT) END OF PERIOD -$506,272 $ 12,844 -$506,272 $ 12,844
========== ========== ========== ========
NET LOSS PER COMMON SHARE
BASIC -$0.01 -$0.01 -$0.01 -$0.01
DILUTED -$0.01 -$0.01 -$0.01 -$0.01
</TABLE>
4
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FLEETCLEAN SYSTEMS INC.
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 TO ADDITIONAL TOTAL STOCK-
TO MARCH 31, 2000 COMMON STOCK PAID IN RETAINED HOLDERS'
SHARES VALUE CAPITAL EARNINGS EQUITY
------------------------------------------ ------------ ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
TOTAL STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1998` 4,736,758 $ 47,367 $ 368,091 $ 16,435 $431,893
SALE OF COMMON STOCK (FEB. 1999) 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 (MARCH 1999) 200,000 2,000 48,000 50,000
CONVERSION OF DEBT ( MARCH 1999) 42,668 427 9,573 10,000
SYNDICATION COSTS -39,300 -39,300
NET LOSS JANUARY-MARCH 1999 -7,005 -7,005
------------ ------------- ---------- ---------- --------
TOTAL STOCKHOLDERS' EQUITY
AS OF MARCH, 1999 5,479,426 54,794 581,364 9,430 645,588
NET LOSS APRIL-JUNE 1999 3,414 3,414
------------ ------------- ---------- ---------- --------
TOTAL STOCKHOLDERS' EQUITY 5,479,426 54,794 581,364 12,844 649,002
AS OF JUNE, 1999
CONVERSION OF DEBT 2,741,467 27,414 162,586 190,000
STOCK ISSUED FOR SERVICES RENDERED 2,369,121 23,692 126,255 149,947
SYNDICATION COSTS -52,887 -52,887
NET LOSS MARCH-DECEMBER 1999 -390,176 -390,176
------------ ------------- ---------- ---------- --------
TOTAL STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1999 10,590,014 105,900 817,318 -377,332 545,886
SALE OF COMMON STOCK (MARCH 2000) 1,450,000 14,500 275,500 290,000
STOCK ISSUED FOR SERVICES RENDERED 100,000 1,000 19,000 20,000
NET LOSS MARCH 2000 -76,031 -76,031
------------ ------------- ---------- ---------- --------
TOTAL STOCKHOLDERS' EQUITY
AS OF MARCH 31, 2000 12,140,014 $ 121,400 $1,111,818 -$453,363 $779,855
------------ ------------- ---------- ---------- --------
NET LOSS JUNE 2000 -$52,909 -$52,909
------------ ------------- ---------- ---------- --------
TOTAL STOCKHOLDERS' EQUITY
AS OF JUNE 30, 2000 12,140,014 121,400 1,111,818 -506,272 726,946
============ ============= ========== ========== ========
</TABLE>
5
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FLEETCLEAN SYSTEMS INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
2000 1999
---------- ---------
UNAUDITED UNAUDITED
<S> <C> <C>
OPERATING ACTIVITIES:
NET LOSS -$128,940 -$3,541
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:
STOCK ISSUED FOR CONVERSION OF DEBT 0
STOCK ISSUED FOR SERVICES RENDERED 20,000 0
DEPRECIATION AND AMORTIZATION 83,787 72,636
(INCREASE)/DECREASE IN ACCOUNTS RECEIVABLE -31,839 -3,801
(INCREASE)/DECREASE IN EMPLOYEE ADVANCES -2,380 -19,514
(INCREASE)/DECREASE IN INVENTORIES -7,918 -61,556
(INCREASE)/DECREASE IN PREPAID EXPENSES -40,058 -15,671
(INCREASE)/DECREASE IN OTHER ASSETS -5,675 -1,870
INCREASE/(DECREASE) IN ACCOUNTS PAYABLE -51,430 10,213
INCREASE/(DECREASE) IN PAYROLL TAXES PAYABLE -2,488 250
INCREASE/(DECREASE) IN INSURANCE PAYABLE 29,226
INCREASE/(DECREASE) IN SALES TAX PAYABLE -3,886 2,366
INCREASE/(DECREASE) IN ACCRUED EXPENSES -39,896 -9,064
---------- ---------
NET CASH USED FOR OPERATING ACTIVITIES -181,497 -29,552
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT, AND EQUIPMENT -100,624 -479,517
ACQUISITION OF TRI STATE CHEMEX -100,000
---------- ---------
NET CASH USED FOR INVESTING ACTIVITIES -100,624 -579,517
FINANCING ACTIVITIES:
INCREASE/(DECREASE) IN NOTES PAYABLE 8,585 512,994
INCREASE/(DECREASE) IN ADVANCE FROM OFFICER 9,140
ISSUANCE OF COMMON STOCK - NET 290,000 60,700
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 307,725 573,694
NET INCREASE/(DECREASE) IN CASH 25,604 -35,375
CASH AT BEGINNING OF PERIOD 1,404 54,383
---------- ---------
CASH AT END OF PERIOD $ 27,008 $ 19,008
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIODS ENDED, JUNE 30 2000 1999
---------- ---------
INTEREST EXPENSE $ 52,718 $ 23,543
INCOME TAX 0 0
ACQUISITION OF TRI-STATE CHEMEX:
ASSETS ACQUIRED $ 46,638
</TABLE>
6
<PAGE>
FLEETCLEAN SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000
FLEETCLEAN SYSTEMS INC
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared by
Fleetclean Systems Inc. (the "Company") in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include
all of the information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation have been included. Results of operations for the
six-month period ended June 30, 2000 are not necessarily indicative of future
financial results. For further information, refer to the financial statements
and footnotes thereto for the fiscal year ended December 31, 1999, included with
the Company's Form 10-KSB, as filed with the Securities and Exchange Commission.
NOTE 2 - EMPLOYEE STOCK OPTION PLAN:
At the annual meeting of shareholders in May 2000 the shareholders adopted
the "2000 Stock Option Plan" which had previously been adopted by the Board of
Directors in March 2000. The plan has 5,000,000 shares of Common Stock reserved
for issuance. As of June 30, 2000, no options have been granted pursuant to the
plan.
NOTE 3 - COMMITMENTS AND CONTINGENT LIABILITIES:
On February 10, 2000, the Company entered into a one-year consulting
agreement with OTC Financial Network ( OTC). OTC is to provide consultation
with, but not limited to, the development, implementation and maintenance of an
ongoing program to increase the investment community's awareness of the
Company's activities and to stimulate the investment community's interest in the
Company. As compensation for this agreement, the Company has issued to OTC
100,000 shares of restricted common stock and 1,400,000 warrants exercisable at
$0.10 each (see Note 4). This agreement is terminable by either party on thirty
days notice beginning May 11, 2000.
On May 15, 2000 the Company entered into a one year consulting agreement
with Scott Sellers. Sellers is to provide additional consultation for
development, implementation, and maintenance of an ongoing program to increase
the investment community's interest in the Company. As compensation for this
agreement, the Company has issued Seller's 250,000 warrants exercisable at $0.10
each (see Note 4). This agreement expires May 15, 2001.
NOTE 4 - ISSUANCE OF WARRANTS:
In connection with the aforementioned contract with OTC Financial the
following warrants have been issued as part of compensation:
700,000 stock purchase warrants expiring February 10, 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 $.10 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 $.50
per share as quoted by the OTC Electronic Bulletin Board or any other
nationally recognized exchange for a minimum of twenty consecutive trading
days.
700,000 stock purchase warrants expiring February 10, 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 $.10 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 for a minimum of twenty consecutive trading
days.
7
<PAGE>
In connection with the aforementioned contract with Scott Sellers, the
following warrants have been issued as compensation.
125,000 stock purchase warrants expiring May 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 $.10 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 $.50
per share as quoted by the OTC Electronic Bulletin Board or any other
nationally recognized exchange for a minimum of twenty consecutive trading
days
125,000 stock purchase warrants expiring May 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 $.10 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 $.75
per share as quoted by the OTC Electronic Bulletin Board or any other
nationally recognized exchange for a minimum of twenty consecutive trading
days.
On April 20, 2000 the Company entered into an advertising agreement with
Multi-Media Group, Inc. (MMG). MMG will create a commercial relating to the
Company's business to be aired in the near future. Compensation for this
agreement includes 125,000 warrants to purchase 125,000 shares of the
Company's common stock at a purchase price of $0.10 per share. The warrants
expire April 20, 2001.
NOTE 5 - SUBSEQUENT EVENTS:
Subsequent to June 30, 2000, the Company's president Kenneth Phillips
exercised outstanding warrants and purchased for cash 249,999 shares of
restricted common stock at an exercise price of $.05 per share.
Subsequent to June 30, 2000, the Company's president Kenneth Phillips
converted $176,998.69 owed to him by the Company to common stock, thereby
canceling the debt. The Company issued 3,539,974 shares of restricted common
stock.
Subsequent to June 30, 2000 the Company issued 200,000 stock purchase
warrants to Eugene Snowden. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.10 per share at a
purchase price of $.05. The warrants expire as follows: one-third on December
15, 2001; one-third on December 15, 2002; and one-third on December 15, 2003.
The warrants were issued as consideration for Mr. Snowden extending the due date
of a $35,000 note payable by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis as of June 30, 2000 and for the
three-month period ended June 30, 2000 and 1999 should be read in conjunction
with the unaudited condensed consolidated financial statements and notes thereto
set forth in Item 1 of this report.
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. For example, words such as, "may,"
"will," "should," "estimates," "predicts," "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statement. Factors that might cause or
contribute to such a discrepancy include, but are not limited to the risks
discussed in our other SEC filings, including those in our annual report on Form
10-KSB for the year ended December 31, 1999. These forward-looking statements
speak only as of the date hereof. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
8
<PAGE>
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.
In March 1999 we acquired an internal tank cleaning facility in Hahnville
Louisiana, which open for business August 21, 1999 after substantial remodeling.
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.
QUARTER AND SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO THE QUARTER AND SIX
MONTHS ENDED MARCH 31, 1999
Revenues
Total revenues increased to $350,496 for the quarter ended June 30, 2000
compared with $287,935 for the quarter ended June 30, 1999. The increase of
21.7% was attributable to increased internal tank cleaning revenues from the
Hahnville facility during the second quarter. Year to date revenues increased
to $702,585 for the six month period ended June 30, 2000 compared with $542,076
for the six month period ended June 30, 1999. The increase of 29.6% was due
primarily to increased revenue from the Hahnville facility during the first and
second quarters.
Cost of goods sold
For the quarter ended June 30 , 2000, cost of goods sold increased to
$97,479 from $52,262 during the quarter ended June 30,1999. The increase of
86.5% was attributable to increased direct labor and associated costs at the
Hahnville facility. Our gross margin as a percent of revenue decreased for the
quarter ended June 30, 2000 to 72% from 82% for the quarter ended June 30,1999.
The decline in gross margin percentage was due to the lower margins received
from our internal tank washing revenues in the Hahnville facility. Year to date
cost of sales increased to $194,203 for the six month period ended June 30, 2000
compared with $98,956 for the six month period ended June 30, 1999. The
increase of 96% was due to the lower margins received from the internal tank
washing revenues in the Hahnville facility. Gross margin as a percent of
revenue decreased for the six month period ended June 30, 2000 to 72% from 82%
for the six month period ended June 30, 1999. The decline in gross margin
percentage was due to the lower margins received from our internal tank washing
revenues in the Hahnville facility.
9
<PAGE>
General and Administrative Expenses
For the three month period ended June 30, 2000, general and administrative
expenses increased to $309,589 from $234,181 during the quarter ended June 30,
1999. For the six month period ended June 30, 2000, general and administrative
expenses increased to $643,124 from $450,600 for the six month period ended June
30, 1999. The three month increase of 32% and the six month increase of 42% was
primarily due to:
- an increase in professional fees primarily attributable to our
preparation and filing of our Form 10-KSB for December 31,1999, and
our Form 10-QSB, for March 31,2000, including audit costs, plus legal
and other professional fees resulting from the preparation and
distribution of proxy materials for our annual meeting of shareholders
which was held May 31, 2000;
- the costs associated with the start-up of the Hahnville facility which
include increased depreciation expense, increased insurance expense,
and increased telephone and utility expenses;
- added interest expense from our increased debt;
- an increase in investor relations expense resulting from a contract
for public relations services; and
- an increase in the number of personnel employed due to adding seven
additional hires from the Hahnville facility.
Net Loss
For the three month period ended June 30, 2000, our net loss was $52,909
compared to a net profit of $3,414 for the three month period ended June 30,
1999. For the six month period ended June 30, 2000, our net loss was $128,940
compared to a net loss of $3,591 for the six month period ended June 30, 1999.
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 used net cash of $181,497 in the six month period
ended June 30, 2000 compared to $29,552 in the six month period ended June 30,
1999. Net cash used by operating activities in the six month period ended June
30, 2000 resulted primarily from net operating losses for the period, which was
offset by a $290,000 increase in cash resulting from issuance of common stock.
Our investing activities used net cash of $100,624 in the six month period
ended June 30, 2000 compared to $579,517 in the six month period ended June 30,
1999. The decrease in our investing activities in the first six months of 2000
when compared with the first six months of 1999 results from fewer capital
projects or acquisitions in the first six months of 2000 compared with the first
quarter of 1999 when the acquisition of Tri-State Chemex Corp. occurred, and the
development of the Hahnville tank wash facility began. The $100,624 investment
in the six month period ended June 30, 2000 is the purchase of land for
expansion of the Hahnville facility.
Our financing activities provided cash of $307,725 in the six month period
ended June 30, 2000 compared to $573,694 in the six month period ended June 30,
1999. The decrease of $265,969 in the six month period ended June 30, 2000
resulted primarily from no changes in notes payable during the period, combined
with issuances of stock for cash in the amount of $290,000 compared with $60,700
in the six month period ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had cash of $27,008 and negative working capital of
$172,224. 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 began to occur in June 2000 and in July 2000. Revenues are expected to
continue to increase as a new contract becomes effective in August 2000. We
have only operated the Hahnville facility since August 1999, and there is no
assurance that our estimates will prove to be correct, and that we will continue
to generate positive cash flow from the facility. We estimate our monthly
operating expenditure for the remainder of fiscal 2000 will be approximately
$125,000, although unexpected expenses may increase our monthly outlays. In
addition, we intend to make additional acquisitions during the year, which will
cause increased expenditures.
10
<PAGE>
As of June 30,2000, we had notes payable aggregating $934,454 to financial
institutions and entities due through September 2008 at interest rates ranging
from 9.0% to 14.7%. Of these notes payable, $254,328 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 $176,999 from certain officers that are
payable on demand. As of the time of this filing, and subsequent to June 30,
2000, these advances have been converted to equity.
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 received preliminary approval for a $1,050,000 twenty-three year Rural
Development Loan in November 1999 through Economic Development Capital.
Although we have not received any formal correspondence from Economic
Development Capital regarding the loan, based on conversations with Economic
Development Capital, we do not expect that we will receive this loan. We are in
the process of determining the reasons for this development.
We have arranged other short term external financing, and are continuing to
seek additional long term financing as we bring cash flows into balance. However
there is no assurance that we will be able to obtain additional financing on
favorable terms, if at all. 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 curtail growth expenditures, and use all cash flows
from operations to fund our current operations.
11
<PAGE>
PART II
OTHER INFORMATION
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 1, 3, and
5 are omitted.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following information sets forth certain information for all securities
we issued during the quarter ended June 30, 2000, without registration under the
Act, excluding any information "previously reported" as defined in Rule 12b-2 of
the Securities Exchange Act of 1934. There were no underwriters in any of these
transactions, nor were any sales commissions paid thereon.
From February to May 2000, we entered into three agreements with
consultants for services, in which we issued 100,000 shares of common stock and
warrants to purchase an aggregate of 1,775,000 shares of our common stock at an
exercise price of $0.10 per share expiring between February and May 2001. The
Company believes these transactions were exempt from registration pursuant to
Section 4(2) of the Act, as the consultants were sophisticated investors with
experience in financial matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of shareholders on May 31, 2000 in which we:
- re-elected our current directors;
- ratified the appointment of our auditors McManus & Co., P.C. by the
following vote: 6,855,746 for, 124 against, and no abstentions;
- adopted our 2000 Stock Option Plan by the following vote: 6,780,845
for, 50,000 against, and 25,025 abstentions; and
- voted on amending and restating our articles of incorporation by the
following vote: 6,801,370 for, 44,500 against, and 10,000 abstentions.
Since we needed a two-thirds vote to amend our articles of
incorporation, this matter was not passed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 3.1 Articles of Incorporation of Fleetclean Systems, Inc.
(Filed previously on Form 10-SB, dated 9/27/99)
Exhibit 3.2 Amended and Restated Bylaws of Fleetclean Systems, Inc.
(Filed previously on Form 10-SB, dated 9/27/99)
Exhibit 4.1 Common Stock Certificate of Fleetclean Systems, Inc.
(Filed previously on Form 10-SB, dated 9/27/99)
Exhibit 10.1 Kenneth A. Phillips Employment Agreement
(Filed previously on Form 10-SB, dated 9/27/99)
Exhibit 10.2 Addendum to Kenneth A. Phillips Employment Agreement
(Filed previously on Form 10-SB, dated 11/12/99)
Exhibit 10.3 Lease/Purchase Agreement
(Filed previously on Form 10-SB, dated 11/24/99)
Exhibit 10.4 Economic Development Capital Letter
(Filed previously on Form 10-SB, dated 11/24/99)
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Exhibit 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Fleetclean Systems, Inc.
Date: August 14, 2000 By: /S/ Kenneth A. Phillips
---------------------------------
Kenneth A. Phillips, President
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