<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Earliest Event Reported: August 19, 1999
ENVIRO-CLEAN OF AMERICA, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEVADA 0-26433 88-0350797
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
211 Park Avenue, Hicksville, NY 11801
- --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (516) 931-4455
<PAGE> 2
EXPLANARY NOTE
This Form 8-K/A amends Item 7 of the current report on Form 8-K filed
by Enviro-Clean of America, Inc. (the "Company") on September 3, 1999, to
include financial statements that were not available at the time of the filing
of the initial report. The financial statements are required as a result of the
August 19, 1999, acquisitions by the Company of Cleaning Ideas, Inc. and its
wholly owned subsidiary, Sanivac, Inc. (collectively, "Cleaning Ideas") and
Superior Chemical & Supply, Inc. ("Superior").
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL STATEMENTS
(a) Financial Statements of Cleaning Ideas for the fiscal year ended
September 30, 1997, September 30, 1998 and for the period ended July
31, 1999; and
Financial Statements of Superior for the fiscal year ended December 31,
1997, December 31, 1998 and for the period ended July 31, 1999.
(b) Pro Forma Consolidated Financial Statements for the year ended December
31, 1998 and for the period ended June 30, 1999.
<PAGE> 3
CLEANING IDEAS, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
JULY 31, 1997
<PAGE> 4
CLEANING IDEAS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 1
FINANCIAL STATEMENTS
Balance Sheet 2
Income Statement 3
Statement of Changes in Retained Earnings 4
Cash Flow Statement 5
Notes to Financial Statements 6-9
</TABLE>
<PAGE> 5
[KIRSCHNER & PASTERNACK LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Cleaning Ideas, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Cleaning Ideas,
Inc. and Subsidiary (a Texas Corporation) as of September 30, 1997, and the
related consolidated statements of income, retained earnings, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cleaning Ideas, Inc.
and subsidiary as of September 30, 1997 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Certified Public Accountants
/s/ KIRSCHNER & PASTERNACK LLP
- -------------------------------
Kirschner & Pasternack LLP
Great Neck, NY
October 8, 1999
1
<PAGE> 6
CLEANING IDEAS, INC. AND SUBSIDIARY
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 258,787
Accounts receivable 399,117
Inventory 409,862
Other current assets 26,931
Total current assets $ 1,094,697
Property and Equipment 130,096
OTHER ASSETS
Cash surrender value-life insurance-net 173,067
Deposits 8,088
Total other assets 181,155
------------
TOTAL ASSETS $ 1,405,948
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 520,211
Current portion-long term debt 301,713
Accrued expenses and taxes 39,987
Total current liabilities $ 861,911
LONG TERM LIABILITIES
Long term debt 92,492
Loan payable - officers 165,000
Total Long-Term Liabilities 257,492
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value -
1,000,000 shares authorized -
270,859 shares issued & outstanding
2,709
Common stock, $.01 par value -
1,000,000 shares authorized -
102,000 shares issued & outstanding 1,020
Paid-in-capital 31,285
Retained earnings 351,531
Less: Treasury stock (100,000)
Total Stockholders' Equity 286,545
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,405,948
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 7
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF INCOME
SEPTEMBER 30, 1997
<TABLE>
<S> <C> <C>
Revenue $ 4,980,676
Cost of sales & services 2,713,017
Gross profit $ 2,267,659
Operating expenses 2,231,968
Income from operations 35,691
Other Income 6,447
Net income before tax 42,138
Federal income tax (6,125)
Net income $ 36,013
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE> 8
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF RETAINED EARNINGS
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Retained Earnings - October 1, 1996 $ 315,518
Net income for year 36,013
----------
Retained Earnings - September 30, 1997 $ 351,531
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE> 9
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
SEPTEMBER 30, 1997
<TABLE>
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 36,013
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 46,926
Loss on sale of vehicle 1,218
(Increase) in accounts receivable (100,098)
(Increase) in inventory (29,531)
(Increase) in current assets and deposits (14,115)
(Increase) in cash surrender value of life insurance (31,198)
Increase in accounts payable 96,144
Increase in accrued expenses and taxes 14,960
----------
Total Adjustments (15,694)
----------
Net Cash Provided by Operating Activities 20,319
Cash Flows from Investing Activities:
Proceeds from sale of vehicle 32,000
Purchase of equipment (97,878)
----------
Net Cash Used by Investing Activities (65,878)
Cash Flows From Financing Activities:
Proceeds from short term debt 224,957
Principal payments on long-term debt (7,277)
----------
Net Cash Provided by Financing Activities 217,680
----------
Net Increase in Cash 172,121
Beginning Cash 86,666
----------
Ending Cash $ 258,787
==========
Supplemental Information:
Cash paid for income taxes $ 6,125
==========
Cash paid for interest $ 46,926
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE> 10
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT OF ACCOUNTING POLICIES
1. Nature of Business
Cleaning Ideas, Inc. and Subsidiary ("Cleaning Ideas") is primarily
engaged in manufacturing and sales of sanitary maintenance supplies and
related products. Cleaning Ideas' products are sold to its own
subsidiary for retail sale in the San Antonio Texas area and to other
customers in that general geographical area.
2. Principles of consolidation
The consolidated financial statements include the accounts of Cleaning
Ideas and its wholly-owned subsidiaries. All material inter-company
accounts and transactions have been eliminated in consolidation.
3. Basis of Accounting
Cleaning Ideas prepares its financial statements using the accrual
method of accounting.
4. Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are
comprised of finished goods of $372,000 and raw materials of $38,000.
Work in progress is immaterial.
5. Property, Plant and Equipment
Depreciation of property, plant and equipment is provided by the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the economic
life of the improvement or the lease term. Deferred taxes, if any, are
not material.
Property, Plant & Equipment is comprised of the following at cost:
<TABLE>
<S> <C>
Furniture and equipment $ 482,316
Improvements 125,622
Transportation and delivery equipment 145,256
----------
753,194
Less: Accumulated depreciation (623,098)
----------
$ 130,096
==========
Expense charged to earnings was $ 46,926
==========
</TABLE>
6
<PAGE> 11
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE A - CONTINUED
6. Accounts receivable are reported net of an allowance for doubtful
accounts of $9,856
7. Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements. The estimated realizable value of loss
carryovers are reported as deferred assets. Differences between
financial and income tax earnings do not give rise to material
deferrals.
8. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE B - LOANS PAYABLE
Note & loan obligations consist of the following:
<TABLE>
<CAPTION>
TOTAL CURRENT LONG
----- ------- ----
TERM
----
<S> <C> <C> <C>
A INTERNATIONAL BANK OF COMMERCE $229,000 $229,000 $ --
B INTERNATIONAL BANK OF COMMERCE 66,662 25,002 41,660
C SHAREHOLDERS 165,000 -- 165,000
D VARIOUS EQUIPMENT 65,543 14,711 50,832
E OTHERS 33,000 33,000 --
======== ======== ========
Totals $559,205 $301,713 $257,492
======== ======== ========
</TABLE>
A Line of credit at prime plus 1 per cent per annum.
B Installment loan at $2,083 per month plus interest at 9 per
cent per annum.
C Repayment deferred for one year without interest.
D Equipment financing and capitalized leases payable at
approximately $1,300 per month, including interest at 7 to 10
per cent per annum.
E Due August 1998. Interest payable at 9 percent per annum.
7
<PAGE> 12
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE B - LOANS PAYABLE (CONTINUED)
The equipment obligations are secured by the applicable equipment. The
bank loans are secured by inventory, accounts receivable, cash value of
life insurance and the remaining fixed assets.
NOTE C - COMMITMENTS & CONTINGENCIES
Cleaning Ideas leases certain various retail stores, and office and
warehouse facilities.
Minimum lease obligations, principally for real property, are
as follows:
<TABLE>
<S> <C>
9/30/98 $358,000
9/30/99 324,000
9/30/00 142,000
9/30/01 80,000
9/30/02 75,000
9/30/03 48,000
</TABLE>
Rent expense charged to earnings was $389,409.
NOTE D - BENEFIT PLANS
Cleaning Ideas provides all eligible employees with various health,
life, and medical benefits.
NOTE E - RELATED PARTY TRANSACTIONS
1. Cleaning Ideas leases certain real property from principal
shareholders. Included in rents for the year were $227,744 to
those shareholders.
2. Additionally, Cleaning Ideas pays royalty fees to
shareholders. That amount was $77,030.
NOTE F - SUBSEQUENT EVENTS
Effective on August 19, 1999, Cleaning Ideas was acquired by
Enviro-Clean of America, Inc, ("Enviro-Clean"). The acquisition was
accomplished by a merger into a subsidiary of Enviro-Clean established
for the acquisition. Terms of the acquisition to Cleaning Ideas
shareholders were:
8
<PAGE> 13
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE F - SUBSEQUENT EVENTS (CONTINUED)
1. $500,000 in cash
2. 320,000 shares of Enviro-Clean Series D preferred stock
3. Aggregate assumed debt of $400,000
4. Secured promissory note of $900,000 payable in quarterly
installments of $112,500 plus interest at 8 3/4% per annum.
9
<PAGE> 14
CLEANING IDEAS, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
<PAGE> 15
CLEANING IDEAS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 1
FINANCIAL STATEMENTS
Balance Sheet 2
Income Statement 3
Statement of Changes in Retained Earnings 4
Cash Flow Statement 5
Notes to Financial Statements 6-9
</TABLE>
<PAGE> 16
[KIRSCHNER & PASTERNACK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Cleaning Ideas, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Cleaning Ideas,
Inc. and Subsidiary (a Texas Corporation) as of September 30, 1998, and the
related consolidated statements of income, retained earnings, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cleaning Ideas, Inc.
and Subsidiary as of September 30, 1998 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Certified Public Accountants
/s/ KIRSCHNER & PASTERNACK LLP
- -------------------------------
Kirschner & Pasternack LLP
Great Neck, NY
September 2, 1999
1
<PAGE> 17
CLEANING IDEAS, INC. AND SUBSIDIARY
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 158,667
Accounts receivable 289,728
Inventory 429,759
Other current assets 17,677
Total current assets $ 895,831
Property and Equipment 77,144
OTHER ASSETS
Cash surrender value-life insurance-net 203,506
Deferred income tax
9,000
Deposits
7,684
-----------
Total other assets 220,190
-----------
TOTAL ASSETS $ 1,193,165
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 480,643
Current portion-long term debt 277,438
Accrued expenses and taxes 19,795
-----------
Total current liabilities $ 777,876
LONG TERM LIABILITIES
Long term debt 15,772
Loan payable - officers 165,000
-----------
Total Long-Term Liabilities 180,772
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value -
1,000,000 shares authorized -
270,859 shares issued & outstanding
2,709
Common stock, $.01 par value -
1,000,000 shares authorized -
102,000 shares issued & outstanding
1,020
Paid-in-capital 31,285
Retained earnings 299,503
-----------
334,517
Less: Treasury stock (100,000)
Total Stockholders' Equity 234,517
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,193,165
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 18
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF INCOME
SEPTEMBER 30, 1998
<TABLE>
<S> <C> <C>
Revenue $ 4,853,070
Cost of sales & services 2,625,691
Gross profit $2,227,379
Operating expenses 2,321,864
Loss from operations
(94,485)
Other Income
33,457
Net Loss before tax
(61,028)
Deferred tax recovery 9,000
Net loss $ (52,028)
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE> 19
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF RETAINED EARNINGS
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Retained Earnings - October 1, 1997 $ 351,531
Net loss for year (52,028)
---------
Retained Earnings - September 30, 1998 $ 299,503
=========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE> 20
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
SEPTEMBER 30, 1998
<TABLE>
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (52,028)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 25,803
Gain on sale of vehicle (3,508)
Decrease in accounts receivable 109,389
(Increase) in inventory (19,897)
Decrease in current assets and deposits 9,658
(Increase) in deferred income taxes (9,000)
(Increase) in cash surrender value of life insurance (30,439)
(Decrease) in accounts payable (39,568)
(Decrease) in accrued expenses and taxes (20,192)
----------
Total Adjustments 22,246
----------
Net Cash Used by Operating Activities (29,782)
Cash Flows from Investing Activities:
Proceeds from sale of vehicle 35,976
Purchase of equipment (5,319)
----------
Net Cash Provided by Investing Activities 30,657
Cash Flows From Financing Activities:
Principal payments on short-term debt (24,275)
Principal payments on long-term debt (76,720)
----------
Net Cash Used by Financing Activities (100,995)
----------
Net Decrease in Cash (100,120)
Beginning Cash 258,787
Ending Cash $ 158,667
==========
Supplemental Information:
Cash paid for income taxes $ 6,046
==========
Cash paid for interest $ 49,755
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE> 21
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT OF ACCOUNTING POLICIES
1. Nature of Business
Cleaning Ideas, Inc. and Subsidiary ("Cleaning Ideas") is primarily
engaged in manufacturing and sales of sanitary maintenance supplies
and related products. Cleaning Ideas' products are sold to its own
subsidiary for retail sale in the San Antonio Texas area and to other
customers in that general geographical area..
2. Principles of consolidation
The consolidated financial statements include the accounts of Cleaning
Ideas and its wholly-owned subsidiaries. All material inter-company
accounts and transactions have been eliminated in consolidation.
3. Basis of Accounting
Cleaning Ideas prepares its financial statements using the accrual
method of accounting.
4. Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are
comprised of finished goods of $395,000 and raw materials of $ 35,000.
Work in progress is immaterial.
5. Property, Plant and Equipment
Depreciation of property, plant and equipment is provided by the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the economic
life of the improvement or the lease term. Deferred taxes, if any, are
not material.
Property, Plant & Equipment is comprised of the following at cost:
<TABLE>
<S> <C>
Furniture and equipment $ 487,634
Improvements 125,622
Transportation and delivery equipment 109,281
---------
722,537
Less: Accumulated depreciation (645,393)
---------
$ 77,144
=========
Expense charged to earnings was $ 25,803
=========
</TABLE>
6
<PAGE> 22
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE A - CONTINUED
6. Accounts receivable are reported net of an allowance for doubtful
accounts of $11,432.
7. Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements. The estimated realizable value of loss
carryovers are reported as deferred assets. Differences between
financial and income tax earnings do not give rise to material
deferrals.
8. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE B - LOANS PAYABLE
Note & loan obligations consist of the following:
<TABLE>
<CAPTION>
TOTAL CURRENT LONG
----- ------- TERM
----
<S> <C> <C> <C>
A INTERNATIONAL BANK OF COMMERCE $242,500 $242,500 $ --
B SHAREHOLDERS 165,000 -- 165,000
C VARIOUS EQUIPMENT 22,710 6,938 15,772
D OTHERS 28,000 28,000 --
---------------------------------
Totals $458,210 $277,438 $180,772
=================================
</TABLE>
7
<PAGE> 23
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE B - LOANS PAYABLE (CONTINUED)
A Line of credit at prime plus 1 per cent per annum.
B Repayment deferred for one year without interest. Paid July
1999. See Note F.
C Equipment financing and capitalized leases payable at
approximately $1,300 per month, including interest at 7 to 10
per cent per annum.
D Due on demand. Interest payable at 9 percent per annum.
The equipment obligations are secured by the applicable equipment. The
bank loans are secured by inventory, accounts receivable, cash value
of life insurance and the remaining fixed assets.
NOTE C - COMMITMENTS & CONTINGENCIES
Cleaning Ideas leases certain various retail stores, and office and
warehouse facilities.
Minimum lease obligations, principally for real property, are as
follows:
<TABLE>
<S> <C>
9/30/99 $334,000
9/30/00 153,000
9/30/01 91,000
9/30/02 78,000
9/30/03 48,000
</TABLE>
Rent expense charged to earnings was $399,514
NOTE D - BENEFIT PLANS
Cleaning Ideas provides all eligible employees with various health,
life, and medical benefits.
NOTE E - RELATED PARTY TRANSACTIONS
1. Cleaning Ideas leases certain real property from principal
shareholders. Included in rents for the year were $231,544 to
those shareholders.
8
<PAGE> 24
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE E - RELATED PARTY TRANSACTIONS (CONTINUED)
2. Additionally, Cleaning Ideas pays royalty fees to
shareholders. That amount was $63,409.
NOTE F - SUBSEQUENT EVENTS
Effective on August 19, 1999, Cleaning Ideas was acquired by Enviro-Clean of
America, Inc, ("Enviro-Clean"). The acquisition was accomplished by a merger
into a subsidiary of Enviro-Clean established for the acquisition. Terms of the
acquisition to the Cleaning Ideas shareholders were:
1. $500,000 in cash
2. 320,000 shares of Enviro-Clean Series D preferred stock
3. Aggregate assumed debt of $400,000
4. Secured promissory note of $900,000 payable in quarterly
installments of $112,500 plus interest at 83/4% per annum.
9
<PAGE> 25
CLEANING IDEAS, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
JULY 31, 1999
<PAGE> 26
CLEANING IDEAS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
JULY 31, 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 1
FINANCIAL STATEMENTS
Balance Sheet 2
Income Statement 3
Statement of Changes in Retained Earnings 4
Cash Flow Statement 5
Notes to Financial Statements 6-8
</TABLE>
<PAGE> 27
[KIRSCHNER & PASTERNACK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Cleaning Ideas, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Cleaning Ideas,
Inc. and Subsidiary (a Texas Corporation) as of July 31, 1999, and the related
consolidated statements of income, retained earnings, and cash flows for the
ten months then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cleaning Ideas,
Inc. and Subsidiary as of July 31, 1999 and the results of its operations and
its cash flows for the ten months then ended in conformity with generally
accepted accounting principles.
Certified Public Accountants
/s/ KIRSCHNER & PASTERNACK LLP
- -------------------------------
Kirschner & Pasternack LLP
Great Neck, NY
September 2, 1999
1
<PAGE> 28
CLEANING IDEAS, INC. AND SUBSIDIARY
BALANCE SHEET
JULY 31, 1999
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C>
Cash $ 238,190
Accounts receivable 248,544
Inventory 395,482
Other current assets 4,727
Total current assets $ 886,943
Property and Equipment 72,853
OTHER ASSETS
Deferred income tax 15,000
Deposits 7,834
Total current assets 22,834
TOTAL ASSETS $ 982,630
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 337,793
Notes and loans payable 400,000
Accrued expenses and taxes 15,827
Total current liabilities $ 753,620
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value -
1,000,000 shares authorized -
270,859 shares issued & outstanding 2,709
Common stock, $.01 par value -
1,000,000 shares authorized -
102,000 shares issued & outstanding 1,020
Paid-in-capital 31,285
Retained earnings 293,996
329,010
Less: Treasury stock (100,000)
Total Stockholders' Equity 229,010
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 982,630
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 29
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF INCOME
JULY 31, 1999
<TABLE>
<S> <C> <C>
Revenue $ 3,623,937
Cost of sales & services 1,967,062
Gross profit $ 1,656,875
Operating expenses 1,782,387
Loss from operations (125,512)
Other Income 114,005
Net Loss before tax
(11,507)
Deferred tax recovery
6,000
Net loss $ (5,507)
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE> 30
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF RETAINED EARNINGS
JULY 31, 1999
<TABLE>
<S> <C>
Retained Earnings - October 1, 1998 $ 299,503
Net loss for year
(5,507)
----------
Retained Earnings - July 31, 1999 $ 293,996
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE> 31
CLEANING IDEAS, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
JULY 31, 1999
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net Loss $ (5,507)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 13,992
Loss on sale of vehicle 9,282
Decrease in accounts receivable 41,184
Decrease in inventory 34,277
Decrease in current assets and deposits 12,800
(Increase) in deferred income tax (6,000)
Decrease in cash surrender value of life insurance 203,506
(Decrease) in accounts payable (142,850)
(Decrease) in accrued expense and taxes (3,968)
--------
Total Adjustments 162,223
---------
Net Cash Provided by Operating Activities 156,716
Cash Flows from Investing Activities:
Proceeds from sale of vehicle 17,578
Purchase of equipment (36,561)
--------
Net Cash Used by Investing Activities (18,983)
Cash Flows From Financing Activities:
Principal payments on short-term debt (277,438)
Principal payments on long-term debt (15,772)
Repayment of officers' loan (165,000)
Proceeds from loans and notes 400,000
--------
Net Cash Used by Financing Activities (58,210)
---------
Net Increase in Cash
79,523
Beginning Cash 158,667
---------
Ending Cash $ 238,190
=========
Supplemental Information:
Cash paid for interest $ 32,398
=========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE> 32
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT OF ACCOUNTING POLICIES
1. Nature of Business
Cleaning Ideas, Inc. and Subsidiary ("Cleaning Ideas") is primarily
engaged in manufacturing and sales of sanitary maintenance supplies
and related products. Cleaning Ideas' products are sold to its own
subsidiary for retail sale in the San Antonio Texas area and to other
customers in that general geographical area..
2. Principles of consolidation
The consolidated financial statements include the accounts of Cleaning
Ideas and its wholly-owned subsidiaries. All material inter - company
accounts and transactions have been eliminated in consolidation.
3. Basis of Accounting
Cleaning Ideas prepares its financial statements using the accrual
method of accounting.
4. Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are
comprised of finished goods of $359,000 and raw materials of $ 36,000.
Work in progress is immaterial.
5. Property, Plant and Equipment
Depreciation of property, plant and equipment is provided by the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the economic
life of the improvement or the lease term. Deferred taxes, if any, are
not material.
Property, Plant & Equipment is comprised of the following at cost:
<TABLE>
<S> <C>
Furniture and equipment $ 512,423
Improvements 125,621
Transportation and delivery equipment 87,517
---------
725,561
Less: Accumulated depreciation (652,708)
---------
$ 72,853
=========
Expense charged to earnings was $ 13,992
=========
</TABLE>
6
<PAGE> 33
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT OF ACCOUNTING POLICIES (CONTINUED)
6. Accounts receivable are reported net of an allowance for doubtful
accounts of $7,360.
7. Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements. The estimated realizable value of loss
carryovers are reported as deferred assets. Differences between
financial and income tax earnings do not give rise to material
deferrals.
8. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Cleaning Ideas estimates an
allowance for doubtful accounts based on the creditworthiness of their
customers, as well as general economic conditions. Consequently, an
adverse change in those factors could affect Cleaning Ideas' estimate.
NOTE B - LOANS PAYABLE
Cleaning Ideas has a $325,000 line of credit facility with
International Bank of Commerce and a $75,000 line of credit facility
with Bank of America. Interest is at prime, plus 1 per cent per annum.
Stockholder loans were paid prior to July 31, 1999
All other loan debt was paid in August 1999.
Total interest charged to earnings was $ 26,883
========
The obligations are secured by inventory receivables, fixed assets,
and cash value of life insurance policies.
7
<PAGE> 34
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
NOTE C - COMMITMENTS & CONTINGENCIES
Cleaning Ideas leases various retail stores, and office and warehouse
facilities.
Minimum lease obligations, principally for real property, are as
follows:
<TABLE>
<S> <C>
7/31/00 $ 340,000
7/31/01 281,000
7/31/02 258,000
7/31/03 242,000
7/31/04 220,000
</TABLE>
Rent expense charged to earnings was $311,172.
NOTE D - BENEFIT PLANS
1. Effective December 1, 1998, Cleaning Ideas established a
deferred compensation retirement plan covering all eligible
employees meeting age and service requirements. The eligible
employees may defer from 2 to 20% of compensation. Cleaning
Ideas annually determines a discretionary matching
contribution up to a maximum deferral of 6%. Employees vest
in matching contributions ratably over 5 years. No company
contribution will be incurred for the current period.
2. Additionally, Cleaning Ideas provides all eligible employees
with various health, life, and medical benefits.
NOTE E - RELATED PARTY TRANSACTIONS
1. Cleaning Ideas leases certain real property from principal
shareholders. Included in rents for the year were $169,317 to
those shareholders.
2. Additionally, Cleaning Ideas paid royalty fees to shareholders
of $67,392.
NOTE F - SUBSEQUENT EVENTS
Effective on August 19, 1999, the company was acquired by Enviro-Clean of
America, Inc., ("Enviro-Clean"). The acquisition was accomplished by a merger
into a subsidiary of Enviro-Clean established for the acquisition. Terms of the
acquisition to the Clean Ideas shareholders were:
8
<PAGE> 35
CLEANING IDEAS, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
NOTE F - SUBSEQUENT EVENTS (CONTINUED)
1. $500,000 in cash
2. 320,000 shares of Enviro-Clean Series D preferred stock
3. Aggregate assumed debt of $400,000
4. Secured promissory note of $900,000 payable in quarterly
installments of $112,500 plus interest at 8.75% per annum.
9
<PAGE> 36
SUPERIOR CHEMICAL & SUPPLY
(A PROPRIETORSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE> 37
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income and proprietor's capital 3
Statements of cash flows 4
Notes to financial statements 5 - 7
</TABLE>
<PAGE> 38
[KIRBY & KIRBY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Proprietor
Superior Chemical & Supply
We have audited the accompanying balance sheets of Superior Chemical & Supply (a
proprietorship) as of December 31, 1998 and 1997, and the related statements of
income and proprietor's capital and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Superior Chemical & Supply (a
proprietorship) as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Certified Public Accountants
/s/ KIRBY & KIRBY
- -----------------------------
Kirby & Kirby
Bowling Green, Kentucky
October 22, 1999
1
<PAGE> 39
SUPERIOR CHEMICAL & SUPPLY
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -0- $ 23,470
Trade receivables 175,132 119,376
Inventories 168,318 134,246
--------- ---------
Total current assets 343,450 277,092
--------- ---------
PROPERTY AND EQUIPMENT, at cost
Land 5,000 5,000
Building and improvements 93,069 93,069
Equipment 24,854 21,277
Vehicles 90,802 22,088
--------- ---------
213,725 141,434
Accumulated depreciation (47,515) (34,214)
--------- ---------
166,210 107,220
--------- ---------
$ 509,660 $ 384,312
========= =========
LIABILITIES AND PROPRIETOR'S CAPITAL
CURRENT LIABILITIES
Bank overdraft $ 20,918 $ -0-
Current maturities of long-term debt 8,208 7,711
Accounts payable 39,879 25,448
Accrued expenses 13,248 9,276
--------- ---------
Total current liabilities 82,253 42,435
--------- ---------
LONG-TERM DEBT 14,007 31,485
--------- ---------
PROPRIETOR'S CAPITAL 413,400 310,392
--------- ---------
$ 509,660 $ 384,312
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 40
SUPERIOR CHEMICAL & SUPPLY
STATEMENTS OF INCOME AND PROPRIETOR'S CAPITAL
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $ 1,497,670 $ 1,310,192
Cost of goods sold 929,260 796,061
----------- -----------
Gross profit 568,410 514,131
Operating expenses 407,012 295,842
----------- -----------
Income from operations 161,398 218,289
Interest expense 3,453 5,156
----------- -----------
Net income 157,945 213,133
Proprietor's capital at beginning of year 310,392 208,064
Withdrawals and other distributions (66,937) (110,805)
Capital contributed 12,000 -0-
----------- -----------
Proprietor's capital at end of year $ 413,400 $ 310,392
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE> 41
SUPERIOR CHEMICAL & SUPPLY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 157,945 $ 213,133
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 13,301 5,899
Increase (decrease) in cash resulting from changes in:
Trade receivables (55,756) 3,766
Inventories (34,072) (33,054)
Bank overdraft 20,918 (55)
Accounts payable 14,431 (33,292)
Accrued expenses 3,972 806
--------- ---------
Net cash provided by operating activities 120,739 157,203
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (47,372) (16,084)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (41,900) (6,844)
Cash withdrawals (66,937) (110,805)
Capital contributed 12,000 -0-
--------- ---------
Net cash used in financing activities (96,837) (117,649)
--------- ---------
Net increase (decrease) in cash and cash equivalents (23,470) 23,470
Cash and cash equivalents at beginning of year 23,470 -0-
--------- ---------
Cash and cash equivalents at end of year $ -0- $ 23,470
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for interest $ 3,453 $ 5,156
========= =========
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Installment purchase obligations related to fixed asset
acquisitions $ 24,919 $ -0-
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE> 42
SUPERIOR CHEMICAL & SUPPLY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF ACCOUNTING
Superior Chemical & Supply, a proprietorship, ("Superior") is engaged
in the sale of chemicals and related supplies primarily to commercial
and industrial customers. Superior's financial statements are presented
in accordance with generally accepted accounting principles. The
accompanying financial statements have been prepared solely from the
accounts of Superior, and the owner represents that they do not include
his personal accounts or those of any other operation in which he is
engaged.
CASH AND CASH EQUIVALENTS
Superior considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
No provision for doubtful accounts has been included in these
statements. Superior has no material loss experience from trade
receivables and anticipates no loss from present trade receivables.
INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined using primarily the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
using primarily declining-balance methods over the estimated useful
lives of the assets. Depreciation expense totaled $13,301 and $5,899 in
1998 and 1997, respectively.
INCOME TAXES
The proprietorship itself is not a tax paying entity for purposes of
federal and state income taxes. Federal and state income taxes of the
proprietor are computed on total income from all sources; accordingly,
no provision for income taxes is made in these statements.
5
<PAGE> 43
SUPERIOR CHEMICAL & SUPPLY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the proprietor to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
NOTE 2. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
James A. Tabb (individual) note
payable, dated February 5, 1990, due
in monthly installments of $1,000
including interest at 12% to February
20, 2002; secured by building. $ -0- $ 39,196
GMAC note payable, dated August 10,
1998, due in monthly installments of
$713 including interest at 1.9% to
August 10, 2001; secured by vehicle. 22,215 -0-
--------- ---------
Totals 22,215 39,196
Current maturities 8,208 7,711
--------- ---------
Long-term debt $ 14,007 $ 31,485
========= =========
</TABLE>
6
<PAGE> 44
SUPERIOR CHEMICAL & SUPPLY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2. LONG-TERM DEBT (Continued)
Aggregate maturities of principal under long-term debt obligations for
each of the succeeding five years are as follows:
<TABLE>
<S> <C>
December 31,
1999 $ 8,208
2000 8,365
2001 5,642
2002 -0-
2003 -0-
Thereafter -0-
--------
$ 22,215
========
</TABLE>
NOTE 3. LEASES
Superior leases buildings in Leitchfield and Beattyville, Kentucky,
under non-cancellable leases classified as operating leases. Initial
lease terms for the Leitchfield building are for ten years beginning
February 1, 1987, with two five-year renewal options. Initial lease
terms for the Beattyville building are for one year beginning August
18, 1998, with one renewal option for one year. Rent expense totaled
$4,200 and $2,700 in 1998 and 1997, respectively.
Future minimum lease payments under non-cancellable operating leases
having remaining terms of more than one year at December 31, 1998 for
each of the succeeding five years are as follows:
<TABLE>
<S> <C>
1999 $ 6,900
2000 5,275
2001 3,000
2002 250
2003 -0-
Thereafter -0-
--------
$ 15,425
========
</TABLE>
7
<PAGE> 45
SUPERIOR CHEMICAL & SUPPLY, INC.
FINANCIAL STATEMENTS
FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
<PAGE> 46
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of income 3
Statement of retained earnings 4
Statement of cash flows 5
Notes to financial statements 6 - 9
</TABLE>
<PAGE> 47
[KIRBY & KIRBY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Superior Chemical & Supply, Inc.
We have audited the accompanying balance sheet of Superior Chemical & Supply,
Inc., as of July 31, 1999, and the related statements of income, retained
earnings, and cash flows for the period from inception, January 1, 1999, to July
31, 1999. 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 audit 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 material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Superior Chemical & Supply,
Inc., as of July 31, 1999, and the results of its operations and its cash flows
for the initial period then ended in conformity with generally accepted
accounting principles.
Certified Public Accountants
/s/ KIRBY & KIRBY
- -------------------------------
Kirby & Kirby
Bowling Green, Kentucky
October 22, 1999
1
<PAGE> 48
SUPERIOR CHEMICAL & SUPPLY, INC.
BALANCE SHEET
JULY 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,098
Trade receivables 198,270
Inventories 192,821
---------
Total current assets 399,189
---------
PROPERTY AND EQUIPMENT, at cost
Equipment 18,234
Vehicles 42,119
---------
60,353
Accumulated depreciation (24,212)
---------
36,141
---------
$ 435,330
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 8,300
Accounts payable 75,135
Accrued expenses 17,190
Income taxes payable 35,163
---------
Total current liabilities 135,788
---------
LONG-TERM DEBT 9,149
---------
STOCKHOLDER'S EQUITY
Common stock, no par value; 100 shares authorized
and issued 203,114
Retained earnings 87,279
---------
290,393
---------
$ 435,330
=========
</TABLE>
The Notes to Financial Statements are an integral part of these statements
2
<PAGE> 49
SUPERIOR CHEMICAL & SUPPLY, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
<TABLE>
<S> <C>
Net sales $1,032,054
Cost of goods sold 603,468
----------
Gross profit 428,586
Operating expenses 305,918
----------
Income from operations 122,668
Interest expense 226
----------
Income before taxes 122,442
Federal and state income taxes 35,163
----------
Net income $ 87,279
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements
3
<PAGE> 50
SUPERIOR CHEMICAL & SUPPLY, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
<TABLE>
<S> <C>
Balance, beginning $ -0-
Net income 87,279
----------
Balance, ending $ 87,279
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements
4
<PAGE> 51
SUPERIOR CHEMICAL & SUPPLY, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 87,279
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 10,024
Increase (decrease) in cash resulting from changes in:
Trade receivables (23,138)
Inventories (24,503)
Bank overdraft (20,918)
Accounts payable 35,256
Accrued expenses 3,942
Income taxes payable 35,163
---------
Net cash provided by operating activities 103,105
---------
CASH FLOWS FROM INVESTING ACTIVITIES -0-
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt and shareholder loan (95,007)
---------
Net increase in cash and cash equivalents 8,098
Cash and cash equivalents at beginning of period -0-
---------
Cash and cash equivalents at end of period $ 8,098
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 226
Income taxes $ -0-
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Property withdrawal $ 120,045
Common stock and shareholder note issued in exchange for net assets $ 293,355
</TABLE>
The Notes to Financial Statements are an integral part of these statements
5
<PAGE> 52
SUPERIOR CHEMICAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
FORMATION OF COMPANY
Superior was incorporated as a Kentucky corporation and began
operations effective January 1, 1999. Prior to this time, Superior
operated as a sole proprietorship. Effective January 1, 1999, the
Company issued common stock with a stated value of $203,114 and a note
of $90,241 to the sole shareholder in exchange for net assets as
follows:
<TABLE>
<S> <C>
Current assets $ 343,450
Vehicles and equipment, net 46,165
Current liabilities (82,253)
Long-term debt (14,007)
----------
$ 293,355
==========
</TABLE>
This transaction is treated for tax purposes as a tax-free exchange
under Internal Revenue Code Section 351.
NATURE OF BUSINESS
Superior is engaged in the sale of chemicals and related supplies
primarily to commercial and industrial customers
CASH AND CASH EQUIVALENTS
Superior considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
No provision for doubtful accounts has been included in these
statements. Superior has no material loss experience from trade
receivables and anticipates no loss from present trade receivables.
INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined using primarily the first-in, first-out method.
6
<PAGE> 53
SUPERIOR CHEMICAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
using primarily declining-balance methods over the estimated useful
lives of the assets. Depreciation expense totaled $10,024 for the
period.
DEFERRED INCOME TAXES
There are no material timing differences between financial statement
and taxable income, therefore, no provision for deferred income taxes
exists.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the proprietor to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
NOTE 2. LONG-TERM DEBT
Long-term debt at July 31, 1999 consists of the following:
<TABLE>
<S> <C>
GMAC note payable, dated August 10,
1998, due in monthly installments of
$713 including interest at 1.9% to
August 10, 2001; secured by vehicle. $ 17,449
Current maturities 8,300
--------
Long-term debt $ 9,149
========
</TABLE>
7
<PAGE> 54
SUPERIOR CHEMICAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
NOTE 2. LONG-TERM DEBT (Continued)
Aggregate maturities of principal under long-term debt obligations for
each of the succeeding twelve month intervals are as follows:
<TABLE>
<S> <C>
July 31,
2000 $ 8,300
2001 8,458
2002 691
2003 -0-
2004 -0-
Thereafter -0-
--------
$ 17,449
========
</TABLE>
NOTE 3. INCOME TAXES
Provision has been made in the statements for federal and state income
taxes as follows:
<TABLE>
<S> <C>
Federal and state income taxes at
statutory rates $ 35,163
========
</TABLE>
NOTE 4. LEASES
Superior leases buildings in Bowling Green, Leitchfield, and
Beattyville, Kentucky, under non-cancellable leases classified as
operating leases. Initial lease terms for the Leitchfield building are
for ten years beginning February 1, 1987, with two five-year renewal
options. Initial lease terms for the Beattyville building are for one
year beginning August 18, 1998, with one renewal option for one year.
Superior leases its Bowling Green building from a limited liability
company owned by the sole shareholder of the Company. Initial lease
terms are for five years beginning March 1, 1999, with one five-year
renewal option.
Rent expense totaled $18,990 for the period.
8
<PAGE> 55
SUPERIOR CHEMICAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
TO JULY 31, 1999
NOTE 4. LEASES (Continued)
Future minimum lease payments under non-cancellable operating leases
having remaining terms of more than one year at July 31, 1999 for each
of the succeeding twelve month intervals are as follows:
<TABLE>
<S> <C>
July 31,
2000 $ 36,900
2001 33,000
2002 31,500
2003 30,000
2004 20,000
Thereafter -0-
---------
$ 151,400
=========
</TABLE>
NOTE 5. SUBSEQUENT EVENTS
Effective on August 19, 1999, Superior was purchased by Enviro-Clean of
America, Inc. in consideration for $400,000 in cash, $1,200,000 in a
note payable over 3 years and 50,000 shares of common stock of
Enviro-Clean of America, Inc. placed in escrow.
9
<PAGE> 56
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL STATEMENTS
(b) Pro Forma Consolidated Financial Statements for the year ended December
31, 1999 and for the period ended June 30, 1999.
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet has been
prepared by combining the consolidated balance sheets of Enviro-Clean of
America, Inc. & Subsidiaries (the Company), Cleaning Ideas, Inc. & Subsidiary
and Superior Chemical & Supply. Inc. as of June 30, 1999. The Acquisitions are
accounted for using the purchase method of accounting as if the Acquisitions had
occurred on June 30, 1999.
The following unaudited pro forma consolidated statements of operations
have been prepared by combining the consolidated statements of operations of the
Company for the fiscal year ended December 31, 1998 and for the 6 months ended
June 30, 1999. The Acquisitions are accounted for using the purchase method of
accounting as if the Acquisitions had occurred on January 1, 1998. No cost
savings and synergies which the Company expects to realize as a result of the
Acquisitions have been recognized in the pro forma consolidated statements of
operations.
The pro forma consolidated financial statements do not purport to
represent what the Company's consolidated financial position or results of
operations actually would have been had the Acquisition been completed on the
dates for which the Acquisition is being given effect, nor is it necessarily
indicative of future financial position or operating results of the Company. The
pro forma consolidated financial statements should be read in conjunction with
the historical financial statements of the respective companies and the related
notes thereto. Certain reclassifications have been made to the historical
financial statements of the Company and in order to provide classifications
appropriate to the pro forma financial statements.
The pro forma consolidated financial statements do not take into
account any modifications to the Acquisitions which may be required to address
any gain-out contingencies or future redemption of the Company's stock issued to
selling shareholders.
1
<PAGE> 57
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ENVIRO-CLEAN CLEANING IDEAS SUPERIOR PRO FORMA
OF AMERICA, INC. INC. & CHEMICAL & PRO FORMA COMBINED
ASSETS & SUBSIDIARIES SUBSIDIARY SUPPLY, INC. ADJUSTMENTS BALANCE SHEET
---------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash & Cash Equivalents $ 3,220,995 $ 177,970 $ 32,691 $ (1,300,000) $ 2,131,656
Accounts Receivable 670,428 339,339 212,747 1,222,514
Merchandise Inventory 125,500 280,223 206,514 612,237
Other 85,569 13,802 -- 99,371
------------ ------------ ------------ ------------ ------------
Total Current Assets 4,102,492 811,334 451,952 (1,300,000) 4,065,778
------------ ------------ ------------ ------------ ------------
Property, Plant & Equipment- Net 182,978 73,607 37,573 -- 294,158
------------ ------------ ------------ ------------ ------------
Other Assets
Goodwill 2,828,352 4,160,767 6,989,119
Other 5,775 213,166 -- -- 218,941
------------ ------------ ------------ ------------ ------------
2,834,127 213,166 -- 4,160,767 7,208,060
------------ ------------ ------------ ------------ ------------
Total Assets $ 7,119,597 $ 1,098,107 $ 489,525 $ 2,860,767 $ 11,567,996
============ ============ ============ ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Expenses $ 713,919 $ 456,778 $ 75,383 $ -- $ 1,246,080
Loans Payable 7,329 401,605 66,300 450,000 925,234
Income Taxes Payable -- -- 13,500 -- 13,500
------------ ------------ ------------ ------------ ------------
Total Current Liabilities 721,248 858,383 155,183 450,000 2,184,814
------------ ------------ ------------ ------------ ------------
Long-Term Liabilities
Notes Payable 3,000,000 -- 9,833 1,250,000 4,259,833
------------ ------------ ------------ ------------ ------------
Redeemable Preferred Stock Series A 2,500,000 -- -- -- 2,500,000
------------ ------------ ------------ ------------ ------------
Stockholders' Equity
Preferred Stock 175,000 2,709 1,597,291 1,775,000
Common Stock 4,310 1,020 203,114 (204,084) 4,360
Additional Paid in Capital 2,428,705 31,285 93,665 2,553,655
Retained Earnings(Deficit) (3,584,666) 304,710 121,395 (426,105) (3,584,666)
Common Stock to be Issued 1,875,000 1,875,000
Less: Treasury Stock -- (100,000) -- 100,000 --
------------ ------------ ------------ ------------ ------------
Total Stockholders' Equity 898,349 239,724 324,509 1,160,767 2,623,349
------------ ------------ ------------ ------------ ------------
Total Liabilities & Stockholders' Equity $ 7,119,597 $ 1,098,107 $ 489,525 $ 2,860,767 $ 11,567,996
============ ============ ============ ============ ============
</TABLE>
2
<PAGE> 58
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ENVIRO-CLEAN CLEANING SUPERIOR
OF AMERICA, INC. IDEAS CHEMICAL
& INC. & & PRO FORMA PRO FORMA
SUBSIDIARIES SUBSIDIARY SUPPLY, INC. ADJUSTMENTS COMBINED
---------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 3,601,356 $ 4,616,883 $ 1,497,670 $ 9,715,909
Cost of sales 1,159,674 2,429,292 929,260 4,518,226
Gross profit 2,441,682 2,187,591 568,410 5,197,683
Operating expenses 1,983,369 2,348,847 410,465 550,811 (A) 5,293,492
Operating earnings(loss) 458,313 (161,256) 157,945 (550,811) (95,809)
Other income 142,139 142,139
Earnings (loss) before income taxes 458,313 (19,117) 157,945 (550,811) 46,330
Income taxes 104,500 (6,000) 55,300 (141,800) 12,000
Net earnings (loss) $ 353,813 $ (13,117) $ 102,645 $ (409,011) $ 34,330
Basic earnings per common share $ .10 $ .01
Weighted-average number of
common shares outstanding 3,454,072 3,504,072
</TABLE>
(A) - Included is amortization of Goodwill with an estimated life of 10 years.
3
<PAGE> 59
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ENVIRO-CLEAN CLEANING
OF AMERICA, IDEAS SUPERIOR
INC. & INC. & CHEMICAL PRO FORMA PRO FORMA
SUBSIDIARIES SUBSIDIARY & SUPPLY, INC. ADJUSTMENTS COMBINED
---------------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 1,822,375 $ 2,160,791 $ 877,854 $ -- $ 4,861,020
Cost of sales 856,609 1,186,220 491,916 2,534,745
Gross profit 965,766 974,571 385,938 2,326,275
Operating expenses 1,024,066 1,020,855 251,043 282,872 (A) 2,578,836
Operating earnings (loss) (58,300) (46,284) 134,895 (282,872) (252,561)
Other income 7,609 7,609
Earnings (loss) before income
taxes (50,691) (46,284) 134,895 (282,872) (244,952)
Income taxes 5,400 (9,000) 13,500 9,900
Net earnings (loss) $ (56,091) $ (37,284) $ 121,395 $ (282,872) $ (254,852)
Basic loss per common share $ (0.01) $ (0.06)
Weighted average number of
common shares outstanding 4,135,000 4,185,000
</TABLE>
(A) - Included is amortization of Goodwill with an estimated life of 10 years.
4
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENVIRO-CLEAN OF AMERICA, INC.
(Registrant)
By: /s/ RICHARD KANDEL
Chairman of the Board and
Chief Executive Officer
Date: October 29, 1999
