<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUER UNDER SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
Enviro-Clean of America, Inc.
-----------------------------
(Name of Small Business Issuer)
Nevada 88-0386415
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
211 Park Ave, Hicksville, NY 11801
------------------------------ -----
(Address of principal executive officers) (Zip Code)
Issuer's telephone number: (516) 931-4455
------------------------------------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
---------------------------- -------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of class)
_______________________________________
(Title of class)
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
Item 1. Description of Business.
(a) Business Development
Enviro-Clean of America, Inc. (the "Company") was incorporated in Nevada on
December 9, 1997 for the purposes of engaging in the marketing and distribution
of sanitary supplies and related paper products. Management of the Company
believed that, in addition to internal expansion, substantial opportunities
existed to expand the Company's business through strategic acquisitions.
Management at the time of incorporation had identified at least three companies,
including Kandel & Son, Inc. ("Kandel & Son") and Nissco/Sunline, Inc.
("NISSCO"), as potential acquisition targets.
In January of 1998, the Company initiated the due diligence review on
NISSCO and Kandel & Son. By mid-1998, the Company began negotiating in detail
the terms and conditions of the acquisitions of Kandel & Son and NISSCO. At the
same time, the Company began negotiations with several potential financing
sources. In late 1998, deposits were placed with the shareholders of Kandel &
Son and NISSCO as the first step in completing the acquisitions of these
companies.
As of January 15, 1999, the Company completed the acquisition of Kandel &
Son, a 48-year old New York-based sanitary supply distribution company. Prior
to the acquisition, Richard Kandel, who is the Chairman of the Board, Chief
Executive Officer and Treasurer of the Company, was also the president and sole
shareholder of Kandel & Son. (See "Item 7 - Certain Relationships and Related
Transactions"). Kandel & Son distributes approximately 1,000 janitorial and
sanitary products to customers in the New York metropolitan area.
As of January 15, 1999, the Company completed the acquisition of NISSCO, a
Florida-based marketing group which acts as sales agent for a buying group
consisting of over 170 sanitary/janitorial supply companies and NISSCO's NIPPCO
division, which is a buying group for over 100 paper products distributors
(NIPPCO and NISSCO are collectively referred to as "NISSCO"). Thomas B. Haines,
a former director of the Company, was the sole shareholder of NISSCO immediately
prior to the acquisition. (See "Item 7 - Certain Relationships and Related
Transactions").
NISSCO derives its revenues in the form of rebates from manufacturers of
products ordered by distributors who are members of the NISSCO buying program.
Manufacturers of cleaning products generally rebate 5% of the gross amount of
orders, to be divided between the buying agent (such as NISSCO) and the
distributor. Generally, NISSCO passes on an amount equal to 2% of the gross
orders to the distributors generating the order and retains 3% as
1
<PAGE>
NISSCO's commission. Members of the NISSCO group purchase approximately $45
million in products each year.
NISSCO and Kandel & Son are wholly owned subsidiaries of the Company. The
Company has not integrated the operations of NISSCO and Kandel & Son, nor does
the Company intend to do so in the foreseeable future, as they occupy different
niches in the marketplace. Prior to the acquisitions of Kandel & Son and
NISSCO, the Company was solely engaged in the strategic planning and development
activities described above. At that time, the Company sold no products or
services.
Following the acquisition of Kandel & Son and NISSCO, management of the
Company intended to continue to expand the revenue base represented by NISSCO
and Kandel & Son, and to further increase revenues rapidly through a series of
acquisitions identified by Company management.
To that end, effective August 1, 1999, the Company entered into definitive
agreements to acquire Cleaning Ideas, Inc. and its wholly owned subsidiary,
Sanivac, Inc., which does business under its own name, as well as under the
trade name "Davis Manufacturing Company" (collectively, "Cleaning Ideas"). The
Closing of the Cleaning Ideas acquisition was effected in August 1999. In
connection with the acquisition, Cleaning Ideas was merged into a wholly owned
subsidiary of the Company specifically formed for this purpose. The new
subsidiary has succeeded to the business of Cleaning Ideas and has been renamed
"Cleaning Ideas Corp." ("CIC").
CIC is a San Antonio, Texas based manufacturer and distributor of cleaning
supplies, with a particular focus on chemical-based products, which has been in
business for over 70 years and gives the Company a geographic presence in the
Southwestern United States. Under the Davis Manufacturing name, CIC
manufactures over 300 products for distribution. CIC operates 12 retail
cleaning supplies stores that sell products bearing the "Cleaning Ideas" private
label brand name. The retail stores focus on selling industrial quality products
to consumers and small businesses. Prior to its acquisition, Cleaning Ideas was
owned by Randall K. Davis, President and Director of the Company, Charles H.
Davis, who is the father of Randall K. Davis, and Carolyn Davis, who is the
mother of Randall K. Davis. (See "Item 7 - Certain Relationships and Related
Transactions.")
On August 17, 1999, the Company completed the acquisition of Superior
Chemical & Supply, Inc. ("Superior"), a Bowling Green, Kentucky-based
distributor of cleaning supplies. Prior to its acquisition, Stephen Haynes,
who remains as the president of Superior, was the sole shareholder of Superior.
(See "Item 7 - Certain Relationships and Related Transactions"). Superior
operates three locations within the state of Kentucky and distributes over 1,000
product items to approximately 300 customers statewide.
The terms and conditions of the Cleaning Ideas and Superior acquisitions
are set forth in the Company's Current Report on Form 8-K filed with the
Commission on September 3, 1999 and as amended on October 29, 1999 and
December 8, 1999.
2
<PAGE>
On October 27, 1999, the Company entered into a definitive Stock Purchase
Agreement with June Supply-San Antonio, Inc., a Texas corporation ("June
Supply"), and June Supply Corp., a Nevada corporation, a wholly owned subsidiary
of the Company formed specifically for the purposes of effecting the acquisition
of June Supply, and Michael Rose and Alan Stafford as the only shareholders of
June Supply. The Company closed the June Supply acquisition on December 16,
1999 and Michael Rose and Alan Stafford will remain as the president and the
vice president of June Supply. June Supply sells janitorial goods to various
customers throughout the state of Texas.
The terms and conditions of the June Supply acquisition are set forth in
the Company's Current Report on Form 8-K filed with the Commission on November
10, 1999 and as amended on January 11, 2000.
The Company continues to engage in extensive research on the cleaning
supplies industry, identifying and categorizing potential acquisition targets by
size of revenues, geographic market and products distributed. The Company uses
the results of this on-going research to further refine its business plan, rate
potential acquisition targets according to their potential fit with the
Company's plans and develop financial projections regarding the capital needs of
the Company. Management also identifies attractive acquisition targets through
advertising in trade publications, by word-of-mouth within its industry, by
attendance at industry trade shows and through additional research. Management
believes that the costs of identifying acquisition targets will not be material,
especially in light of the substantial overlap between the expenditures for
these activities and those of general marketing expenses. For example, trade
publication advertising and trade show attendance are also core marketing
activities and, as such, would also be included in the Company's basic marketing
budget.
The Company intends to focus its acquired companies on retaining their
existing customer base and, where possible, to utilize the broader and deeper
resources of the Company to assist the acquired companies to expand their market
share. The Company's focus on customer retention is highlighted by the fact
that in most instances, the Company intends to retain the name of the acquired
company and to enter into employment contracts with the principals of the
acquired companies. The Company also intends to structure the purchase price of
its acquisition agreements to provide "earn-outs," or incentives in which the
purchase price can be increased based on the performance of the acquired
companies following their acquisition. The Company intends to assist its
acquired companies to expand their market share by using the additional
marketing capabilities and resources of the Company to attract new customers and
by acquiring additional companies within the same geographic market. Where
appropriate, the Company intends to utilize acquired companies as regional
"hubs" around which additional consolidation can be effected within a geographic
market.
With respect to the products and services to be offered by acquired
companies, the Company does not intend to alter substantially the product mix of
acquired companies. Generally speaking, distributors tend to carry
substantially similar product lines and to source their products from a
relatively small number of master distributors.
3
<PAGE>
While it is impossible to predict the effect that any acquisition will have
on the ability of the acquired company to retain its existing customers, the
Company believes it is taking all reasonable efforts to ensure that its acquired
companies can continue to compete for the business of their existing customer
base.
As the Company believes that much of the competition in its industry tends
to focus on services, the Company intends to expand substantially the range of
services offered by its acquired companies. Central to this effort is the
Company's planned Internet-based ordering system that will link each acquired
company and selected customers directly with the Company's central Internet-
based ordering system. This system will allow the Company to place orders with
its master distributors electronically, eliminating paper, postage and fax costs
and allowing for instant ordering. The Company's initial system is currently in
the process of being implemented and is designed to expand modularly with the
addition of acquired companies. (See "Description of Business - Application of
Technology"). The Company also intends to distribute CD-ROM based catalogs to
its distributors and customers to enhance the ordering capability of those who
do not wish to order over the Internet. Management of the Company believes that
these efforts will lower its effective costs of sales over traditional product
and ordering systems that relied principally upon printed catalogs and purchase
orders or telephone orders.
(b) Business of Issuer
The Company is a holding company, the principal assets of which are all the
issued and outstanding capital stock of Kandel & Son, NISSCO, Cleaning Ideas,
Superior and June Supply. Through these subsidiaries, the Company engages in
the purchasing, marketing and distribution of janitorial and sanitary supplies
and related paper products nationwide. The Company intends to use its current
businesses as a base from which to acquire profitable companies in the
janitorial/sanitary supplies business across the United States and to put into
place management controls and systems to enable the combination of these
companies to realize substantially greater growth and profitability than they
are able to achieve under current ownership and management. The Company may
also consider acquisition targets in Canada.
A. The Market for the Company's Products
The market for sanitary/janitorial supplies and services in the United
States is substantial. According to the International Sanitary Supply
Association's most recent survey in 1997, the sanitary/janitorial distribution
industry had $16.7 billion in sales. This figure represented a 10.4% increase
over the corresponding figures for 1995. According to the survey, the sale of
paper and plastics for 1997 was approximately $6.6 billion, followed by the sale
of chemical products (cleaners, degreasers, etc.) at $6.1 billion. Janitorial
supplies and accessories were the third largest segment of the market with sales
measured to be approximately $1.9 billion.
The Company believes that the market for janitorial products has grown
due to the growth of the economy in general and an increasing concern of
building owners and managers for health and safety. The Company also believes
that the overall market is growing due to increasing
4
<PAGE>
customer demands for a greater variety of products and services, including
contract cleaning, training and education.
According to the same survey, industrial and manufacturing companies
account for the largest customer group for janitorial goods with $3.6 billion in
aggregate purchases, followed by commercial property owners and educational
institutions at nearly $2 billion each, and next followed by health care
companies at nearly $1.6 billion. Additional market opportunity exists with
respect to sales to restaurants/clubs, retail establishments, residential
properties, government, recreational facilities, transportation companies,
hotels/motels, and religious facilities.
B. Industry Structure and Trend
The Company believes that the sanitary/janitorial supply industry is
undergoing a period of consolidation. The Company believes that due to the
large number of small companies in the industry, and the presence of only a few
large enterprises, there exists an opportunity to consolidate the market. There
are a few large companies engaged in the business of supplying and distributing
sanitary/janitorial supplies, but their consolidation efforts have been targeted
at relatively large companies with $50 million or more in annual revenues.
Despite this activity, the Company believes that there is currently no one
dominant player in the industry. (See "Competition")
In this environment, management recognizes that there are a
significant number of small, profitable sanitary/janitorial supply companies
that may be desirable acquisition targets for consolidation. These small
companies may be receptive to acquisition offers because they are currently
facing difficult competition from the larger companies, as well as those
companies that are increasing in size through the on-going consolidation in the
industry. Though smaller in size, these companies can often successfully
compete in their region with the larger suppliers and service providers by
offering greater levels of service and niche products not offered by the larger
competitors. However, the Company believes that these smaller companies are
increasingly feeling the competitive pressure from companies who are able to
offer lower prices and take advantage of economies of scale. Additionally, many
of these small companies are family-owned businesses that lack the depth and
breadth of management and financing skills, marketing expertise, resources, and
access to productivity enhancing technology necessary to expand their companies
further.
Management believes that consolidation in the janitorial/sanitary
supply industry will continue at a rapid rate for the foreseeable future due to
industry characteristics including: (i) economies of scale that drive
profitability, (ii) need for compliance with government regulations for safety
and the environment, (iii) advantages of vertical integration; and (iv) the
increased application of technology to monitor inventory, delivery schedules,
ordering and related activities.
(1) Economies of Scale
By consolidating businesses, the Company may be able to reduce
its costs by eliminating costly repetitive services and increase profit by
obtaining cheaper per unit costs. For example, delivery costs of janitorial
supplies tend to make up a substantial percentage of cost of
5
<PAGE>
goods sold. By consolidating small companies, the Company can reduce delivery
costs by shipping in bulk and negotiating lower delivery fees or investing in a
delivery system of its own. In addition, the Company estimates that only 3% of
the total cost of cleaning service relates to the costs of materials sold; the
rest is labor, sales, marketing and delivery expenses. Thus, from the economic
viewpoint of the Company's current or potential customers, the suppliers'
efficient delivery of value-added service is becoming increasingly important,
especially concerning training and education to reduce the customers' labor
costs.
(2) Compliance with Government Regulations
There are a number of government agencies that set standards and
regulations on the use and handling of chemical products and for sanitary
conditions. Included in these agencies are the Occupational Safety and Health
Administration (OSHA) which regulates chemicals related to occupational safety,
the Environmental Protection Agency (EPA) chartered to protect land, air, and
water, and the Consumer Product Safety Commission (CPSC) which regulates the use
and labeling of chemicals and products. These agencies issue rulings that
directly affect the practices and purchases of the sanitary/janitorial
supplier's customers. Maintenance and distribution of many of the industry's
products are subject to extensive regulation at the federal, state and local
levels.
With the continuous change in the regulations being imposed upon
the janitorial and cleaning supplies industry, the individual companies in the
industry, in particular the small to mid-size companies, are likely to
experience an increase in costs in their compliance programs. The Company
believes that consolidation is being fueled in part by a consolidated company's
ability to finance such compliance programs and the reduction in expense through
allocation of the expense throughout the consolidated company. In addition, a
consolidated company may have the resources available to hire environmental
consultants in order to assist it in complying with the environmental laws and
regulations as they are continuously enacted.
(3) Advantages of Vertical Integration
The Company believes that the consolidation of the industry is
also being fueled by the push toward integrated supply. Distributors are looking
to simplify the purchasing process and reduce the number of suppliers with which
they must interact. This has two key effects. First, it provides opportunities
for distributors to reach geographically dispersed customers, thereby expanding
its markets and market share. Second, it fuels the acquisition trend as large
wholesale distributors look to expand their product lines. By acquiring a
manufacturing company, a distributor may increase the number of products it may
offer because, in addition to the large number of products manufacturer may
produce, many manufacturers carry unique products they have developed which are
not carried by other manufacturers.
6
<PAGE>
(4) Application of Technology
The janitorial/sanitary supply industry, as is true with most
wholesale distributors, is just beginning to embrace the application of
technology to improve operations and service levels. The most notable
technology opportunities concern the Internet. Again, the Company believes that
the ability of a consolidated company to pool revenues to explore cutting edge
technologies available will spur such consolidation. The Company plans to
embrace the use of the Internet to better achieve its goals and to secure its
position as a competitive element in the janitorial/sanitary supply market.
The explosion of the Internet, as a low cost, ubiquitous
communications channel, has created significant opportunities for those willing
to embrace this new channel. It affords the opportunity to reach manufacturers
and customers more efficiently and streamline the acquisition process. The
Company estimates that most of sanitary supply manufacturers have Internet
access, yet less than half of the distributors are on-line. The Internet allows
customers to keep up-to-date on product offerings, order products more
efficiently, and obtain valuable information regarding product use and safety.
The Company intends to implement a company-wide, Internet based network linking
all its distributors with the Company. The Company also intends to reach retail
customers through an Internet-based electronic commerce program that would allow
consumers to order products through the Company's web site by using credit cards
and receive next-day delivery through a nationally recognized overnight carrier
service.
In its initial efforts in this area, the Company entered into a
letter of intent with ResponseLogic, Inc., an Internet marketing and electronic
commerce company, to implement the Company's electronic distributor network and
"eCommerce" program. The letter of intent expired as of April 30, 1999 and the
parties have decided not to continue working together. Total expenditures by the
Company prior to the abandonment of this venture were approximately $11,000,
which was treated as an expense. The Company has no ongoing interest of any kind
in clickUP.com, Inc., the entity initially established to operationalize the
joint venture with ResponseLogic. To the best knowledge of the Company,
ResponseLogic retains 100% ownership of clickUP.com, Inc. The Company has no
knowledge of the current operations, if any, of clickUP.com, Inc.
The Company plans to implement its eCommerce program in four
phases with the goal of fully implementing such program by January 1, 2001.
During the first phase, the Company retained Telcom.net, an Internet web site
developer, to implement the Company's initial informational web site
http://www.evclean.com)www.evclean.com in July of 1999. In addition, the
- ----------------------- ---------------
Company entered into an agreement with b2bstores.com, Inc. ("b2bstores"), a
California-based designer and producer of Internet-based electronic commerce
programs and on-line "stores." Pursuant to the agreement ("b2bstores
Agreement"), b2bstores has implemented the Company's initial eCommerce web site
(http://www.b2bgoods.comwww.b2bstores.com).
----------------------------------------
The Company's "b2bgoods.com" web site currently offers approximately
25,000 office supply products and janitorial and sanitary products for
electronic purchases. Pursuant to the b2bstores Agreement, b2bstores provides
the Company with web site transaction processing and e-
7
<PAGE>
commerce services for its b2bgoods.com web site through b2bstores' e-commerce
backbone. For these services, b2bstores is to receive from the Company a fee
equal to the greater of (a) 10% of the Company's revenues generated through e-
commerce activities conducted through www.b2bgoods.com or (b) 50% of the
Company's gross profits generated through e-commerce activities conducted at
www.b2bgoods.com. Pursuant to the same agreement, b2bstores also hosts on-line
stores at its web site
(http://www.b2bstores.com), through which the Company's products are being
- -------------------------
offered for electronic purchases. All of the Company's products purchased
through b2bstores' web site are to be distributed directly to b2bstores'
customers by the Company through its distributor network. The Company will
charge b2bstores a price for each product equal to its cost for the product and
will receive 2-5% of the gross payment that the end-users will pay on each
product sold at such on-line stores hosted on the b2bstores web site. The
Company has also agreed that, in connection with its eCommerce program, it will
sell its products on the Internet only through the b2bgoods.com or the
b2bstores.com site and that it will not sell on its web site any products other
than its current products, until it owns less than 10% of b2bstores' outstanding
common stock.
For the second phase of the program, the Company plans to
complete by May 2000 its web-based product catalogues describing all of the
Company's products and suggested uses. The Company also plans to complete and
distribute the CD-ROM based catalogues for its distributors and customers to
enhance the ordering capacity of those who do not wish to order over the
Internet. For the third phase of the program, by August 2000, the Company plans
to electronically compile comprehensive "material safety and data sheets" for
its products so that its distributors and customers can easily access them for
references. The Company intends to complete the fourth and final phase of its
eCommerce program by January 2001. Upon successful completion, the program will
include the following additional services;
. an electronic auction site through which the Company's business
customers can sell their excess inventories to bidders;
. a central internet-based management software program which links each
subsidiary with the distributors and customers and provides paperless
accounting and ordering process; and
. an interactive electronic customer service representative to whom the
customers can direct their questions and request for advices
concerning the Company's products.
The costs of implementing the initial informational web site and eCommerce
program were not material and management of the Company does not believe that
ongoing costs of integrating new distributors will be material. There is no
guarantee that the Company will be able to implement the remaining phases of its
eCommerce program as planned.
The Company, Richard Kandel ("Kandel"), Randall Davis ("Davis") and Steven
C. Etra are the principal shareholders of b2bstores. Since its inception in June
1999, b2bstores' working capital requirements had been satisfied through capital
contributions made by the Company, Richard Kandel, Randall Davis and Mr. Etra
and loans made to it by the Company. In June 1999, the
8
<PAGE>
Company, Kandel, Davis, Mr. Etra, and others purchased an aggregate of 3,410,000
shares of b2bstores common stock for $27,500 in the form of $11,000 in cash and
the transfer to b2bstores of all of rights and interest in www.b2bstores.com and
all related assets, including intellectual property.
In June, July, November, December 1999 and January 2000, the Company made
loans to b2bstores in the aggregate principal amount of approximately
$1,199,836. These loans bear interest at the rate of 8% per annum and are
repayable on the earlier of (a) March 1, 2000 and (b) the date of the initial
public offering by b2bstores. In August 1999, b2bstores consummated a
financing in which it raised proceeds of $625,000 through the sale of 310,000
shares of its common stock to Kandel, Mr. Etra and Mr. Etra's affiliates.
As of December 31, 1999, the Company owns 1,860,000 shares of the b2bstores
common stock, constituting approximately 49.7 % of the total outstanding
b2bstores common stock while Kandel, Davis and Steven C. Etra each owns
additional 1,233,333 shares (30.7%), 310,000 shares (8.3%) and 147,560 shares
(4.2%) of b2bstores common stock, respectively.
The Company has also furnished some of b2bstores' vendors with guarantees
with respect to b2bstores' obligations to them. As of January 1, 2000,
b2bstores owes in aggregate less than $10,000 to such vendors to whom the
Company provided guarantees. The Company has also provided a guaranty for
b2bstores' lease and signed such lease as the guarantor. The b2bstores' lease
expires on August 31, 2001 with yearly rent payment totaling $75,000. The
Company received no compensation or other consideration for acting as b2bstores'
guarantor.
Richard Kandel, the Chairman and Chief Executive Officer of the Company,
serves as the chairman of the board of b2bstores.com, Inc. He has entered into
a three-year employment agreement with b2bstores effective November 1999.
Pursuant to the terms of such agreement, Mr. Kandel will be required to devote
50% of his business time to the operations of b2bstores. Kandel's position as
a director, officer and shareholder of each of the Company and b2bstores may
create or appear to create potential conflicts of interest when he is faced with
decisions that could have different implications for the Company and b2bstores.
(See "Description of Business--Business of Issuer--Competition)
9
<PAGE>
C. The Company's Products, Sales and Marketing
Kandel distributes approximately 1,000 janitorial/sanitary products to
customers in the New York City metropolitan area, where it has been in business
for 48 years. NISSCO serves as the purchasing agent for a marketing group
consisting of over 270-member sanitary/janitorial supply and related paper
products companies which account for over $45 million in annual purchases of
janitorial/sanitary supplies and related paper products. CIC is a San Antonio-
based regional manufacturer, distributor and retail vendor of cleaning supplies
to customers located within Southern Texas. Superior operates three
distribution centers within the State of Kentucky from which it distributes
cleaning products. The Company has not integrated the operations of these
subsidiaries, nor does the Company intend to do so in the foreseeable future, as
they occupy different geographic market niches.
The combined businesses of the Company represent distribution of over
1,200 products to over 1,000 customers directly in New York, Texas and Kentucky
and, through NISSCO, throughout all 50 states. The Company competes principally
on the basis of price and value-added services such as next-day delivery,
training, customer support and technological innovation in distribution.
Products distributed by the Company's subsidiaries are generally
shipped by truck or other common carriers to local distributors who keep an
inventory of the most popular products. Less commonly ordered products can be
shipped via UPS or other delivery service for next day delivery or by the same
common carriers for less time-sensitive deliveries. Products ordered by
customers over the Internet will be shipped to such customers directly by the
Company's master distributors, which maintain regional distribution centers
across the United States. The Company conducts its businesses with the master
distributors through customary purchase orders.
The Company purchases products, through master distributors, from a
wide variety of manufacturers. Master distributor refers to a large distributor
with national or regional distribution capabilities. Master distributors the
Company uses include Bunzl/Papercraft, TEC Products, Inc., La Gass Bros., Inc.
and Sweet Paper Company. The Company believes that virtually all of its
products are available from multiple sources and the loss of one or even several
sources would not have a material adverse effect on the Company's business.
Similarly, the Company sells to over 1,000 customers, none of which accounts for
more than 3% of the Company's sales on an annual basis. Accordingly, the
Company is not overly dependent on any one or few customers. NISSCO acts as
purchasing agent for a nationwide network of distributors. NISSCO derives its
revenues from a 5% rebate from manufacturers on all purchases made by group
members. NISSCO shares this rebate with its distributors, passing on 2% of the
aggregate rebates to the distributors.
D. Competition
The market for janitorial/sanitary supplies has only a few large,
well-capitalized competitors and consists of a large number of small companies
servicing local and regional markets. The larger suppliers in the industry
include:
10
<PAGE>
Unisource Worldwide
W.W. Grainger
Corporate Express
ResourceNet International
Waxie Sanitary Supply
Most of these corporations have multiple divisions, with one of those
being in the sanitary/janitorial supply industry. The Company is not currently
a significant competitor in the industry in terms of annual sales and its market
share is negligible. However, the Company believes that, through an aggressive
plan of acquisitions, it can become a significant industry competitor within 18
months to two years. There can, of course, be no assurance that the Company
will be successful in identifying attractive acquisition targets, negotiating
advantageous acquisition terms or obtaining the financing necessary to sustain
growth through acquisitions. Failure of the Company to achieve any one of these
goals could force it to substantially curtail its acquisition plans. If the
Company were forced to do so, it would focus its activities on attempting to
foster internal sales growth and profitability, but such growth would be much
slower than under the Company's current plans and the Company's plan to become a
significant industry leader could be in jeopardy.
The Company believes that, while the larger distributors are the main
competition in the industry, many of the independent janitorial/sanitary supply
distributors still maintain a healthy and profitable local market share.
Competition is, however, forcing prices down and leaving the independently run
companies more vulnerable. With the market being serviced by what the
management considers only a few large competitors, most of the overall market,
based on total sales, is divided among a large number of smaller competitors.
The larger competitors have competitive advantages over the Company in
the economies of scale they realize through centralized purchasing, the ability
to carry extensive product lines to provide their customers with "one stop
shopping" for all their janitorial/sanitary supplies, their ability to provide
favorable payment terms to customers and their ability to realize broad-based
efficiencies through the strategic implementation of information technology.
Small companies tend to compete through provision of additional or superior
services such as personalized customer service. The combined experiences of
the Company's management in the industry has brought it to the conclusion that,
while customers are always looking for better pricing, they are sometimes
motivated in their purchase decisions by customer service and value-added
services. Management of CIC and Superior have indicated that their experience
is similar. Management believes that this is one of the key reasons why the
smaller, independent distributors are still a major force within the industry.
The relationships that exist and the service levels that can be offered by the
smaller distributors keep customers loyal. Often, the small distributors
provide a specialization or niche product that the larger distributors will not
spend the time to provide. In being closer to their customers, the small
distributors can and must provide value-added services, such as education and
training, to maintain the needed profit margins.
B2bstores sells through the Internet many of the same janitorial/sanitary
products and other office supply products that the Company sell through its web
site, and, therefore, it may be deemed
11
<PAGE>
a competitor of the Company in that regard. The Company has agreed with
b2bstores that, in connection with its eCommerce program, the Company will sell
its products on the Internet only through the b2bgoods.com or the b2bstores.com
site and that it will not sell on its web site any products other than its
current products, until it owns less than 10% of b2bstores' outstanding common
stock.
The Company, Richard Kandel, Randall Davis and Steven C. Etra are the
principal shareholders of b2bstores. Since its inception in June 1999,
b2bstores' working capital requirements had been satisfied through capital
contributions made by the Company, Richard Kandel, Randall Davis and Mr. Etra
and loans made to it by the Company. In June 1999, the Company, Kandel, Davis,
Mr. Etra, and others purchased an aggregate of 3,410,000 shares of b2bstores
common stock for $27,500 in the form of $11,000 in cash and the transfer to
b2bstores of all of rights and interest in www.b2bstores.com and all related
assets, including intellectual property.
In June, July, November, December 1999 and January 2000, the Company made
loans to b2bstores in the aggregate principal amount of approximately
$1,199,836. These loans bear interest at the rate of 8% per annum and are
repayable on the earlier of (a) March 1, 2000 and (b) the date of the initial
public offering by b2bstores. In August 1999, b2bstores consummated a
financing in which it raised proceeds of $625,000 through the sale of 310,000
shares of its common stock to Kandel, Mr. Etra and Mr. Etra's affiliates.
As of December 31, 1999, the Company owns 1,860,000 shares of the b2bstores
common stock, constituting approximately 49.7 % of the total outstanding
b2bstores common stock while Kandel, Davis and Steven C. Etra each owns
additional 1,054,000 shares (30.7%), 310,000 shares (8.3%) and 147,560 shares
(4.2%) of b2bstores common stock, respectively.
The Company has also furnished some of b2bstores' vendors with guarantees
with respect to b2bstores' obligations to them. As of January 1, 2000,
b2bstores owes in aggregate less than $10,000 to such vendors to whom the
Company provided guarantees. The Company has also provided a guaranty for
b2bstores' lease and signed such lease as the guarantor. The b2bstores' lease
expires on August 31, 2001 with yearly rent payment totaling $75,000. The
Company received no compensation or other consideration for acting as b2bstores'
guarantor.
Richard Kandel, the Chairman and Chief Executive Officer of the Company,
serves as the chairman of the board of b2bstores.com, Inc. He has entered into
a three-year employment agreement with b2bstores effective November 1999.
Pursuant to the terms of such agreement, Mr. Kandel will be required to devote
50% of his business time to the operations of b2bstores. Kandel's position as a
director, officer and shareholder of each of the Company and b2bstores may
create or appear to create potential conflicts of interest when he is faced with
decisions that could have different implications for the Company and b2bstores.
These decisions may relate to:
. potential acquisitions of businesses;
. intercompany agreements;
12
<PAGE>
. the establishment of e-commerce marketing arrangements and other areas
of competition;
. the issuance or disposition of securities; and
. the election of directors.
Given Kandel's roles with both the Company and b2bstores and the
potentially competitive position of each business, he may not always be able to
align his interest with the interests of both businesses. The manner in which
any conflict of interest in any situation is resolved may not be the manner that
would be most beneficial to the interests of the shareholders of the
Company.
E. Acquisition Program
The Company's objective is to build a strong presence in the
janitorial/sanitary supplies distribution industry at a middle market level
through the implementation of the Company's acquisition program. In the first
stage of its acquisition program, the Company intends to acquire approximately
six to eight sanitary supply distributors, which fit the Company's profiles for
suitable acquisition targets. According to the Company's target profile, a
suitable acquisition target will:
. have annual revenue in the $2 million to $10 million range;
. have net pre-tax profits of at least 10% of gross revenue; and
. have management whose key members have expressed their
willingness to work for the Company on long term basis.
Management believes that this series of acquisitions can be completed
within the next six months, although there can be no assurance that all these
acquisitions will be completed on time or at all, or that historical results of
any acquired companies will be repeated under Company ownership. The first two
of such acquisitions were the CIC and Superior transactions which were completed
in August of 1999. The Company has also completed the acquisition of June Supply
on December 16, 1999. In addition, five other candidates have provided the
Company with preliminary financial, commercial and organizational information
relative to the Company's analysis of these companies in acquisition
negotiations, though no contracts have been prepared. The Company continues to
investigate other potential target companies.
On June 1, 1999, in furtherance of the acquisition program, the
Company received aggregate proceeds of $3,000,000 from a private offering of 300
units at an offering price of $10,000 per unit. Each unit was comprised of a
12.75% Subordinated Promissory Note due April 1, 2002 in the principal amount of
$10,000 and 2,400 common stock purchase warrants. Each warrant is exercisable
for one share of the Company's Common Stock (as defined herein), at an exercise
price of $4.25 per share, at any time from six months from their date of
issuance to four years from
13
<PAGE>
that date. The Company used these proceeds to acquire CIC and Superior and the
balance will be used for working capital purposes.
In December of 1999, the Company began a private placement of a
minimum of 200 units and a maximum of 800 units at $10,000 per unit, each unit
consisting of 100 shares of Series B Cumulative Convertible Preferred Stock (the
"Series B Stock") and 1000 common stock purchase warrants. On December 15,
1999, the Company sold an aggregate of 251.4 units to approximately 59
accredited investors for aggregate proceeds to the Company of $2,514,000. As
part of the same offering, the Company sold an additional 2.5 units to Barry
Gordon, a Director of the Company for an aggregate proceed of $25,000. The
Company closed the private placement as of December 31, 1999. (see "description
of Securities - Preferred Stock") The Company used part of the proceeds from
this offering to acquire June Supply and the balance will be used for working
capital purposes.
Beginning around mid-January, 2000, the Company began a new private
placement of a maximum of 137,500 units at $8.00 per unit, each unit consisting
of two (2) shares of Common Stock and one (1) common stock purchase warrant.
The Company expects to continue the new private placement until February 29,
2000, or until the maximum number of units are sold. The Company will use the
proceeds from this offering to continue its acquisition program as well as for
working capital purposes.
There can be no assurance that the Company will obtain any additional
financing on terms satisfactory to it. The failure of the Company to obtain
additional financing will have a materially adverse effect on its ability to
implement its acquisition strategy.
F. Corporate Structure, Strategic Planning and Integration of
Acquisitions
The Company plans to maximize the revenue and profitability of its
acquired companies through the enhancement of core revenues, reductions in the
costs of goods sold, the emphasis of personalized customer service and the
implementation of industry technologies that allow centralized purchasing,
inventory management and supply.
For the short term following most acquisitions, the acquired companies
will be maintained as wholly owned subsidiaries of the Company. Each acquired
company will maintain a local manager and, at least initially, retain its name.
The Company will attempt to capitalize upon the acquired company's existing
market presence, to establish the Company as a recognized national industry
leader and to use this image of the Company to augment the acquired company's
image in the local or regional market. The Company intends, where practical, to
integrate operations of acquired companies and to implement a "best practices"
program through which advantageous business practices of an acquired company
will be implemented in other acquired companies. The Company intends to pursue
these activities in a manner designed to retain a high percentage of existing
accounts and does not burden local operations with excessive overhead. The
Company intends a strong focus on maintaining value-added levels of customer
service while attempting to realize improved economies of scale.
14
<PAGE>
The Company then intends to utilize selected acquired companies as
regional distribution "hubs" to which additional revenues can be added through
incremental acquisitions of smaller local companies, each generating $750,000 to
$1,250,000 in annual revenues. Each hub company will be used to centralize
purchasing and administrative services such as payroll, insurance and accounting
for its region.
If the Company is successful in achieving aggregate annual revenues of
approximately $25 to $35 million, and regional hubs are in place, the Company
would begin the nationwide centralization of administrative services, such as
legal, accounting, systems integration and implementation, insurance purchasing
and auto and truck purchasing. The goal of this stage is to maximize cost
savings and profits. During this stage, the Company intends to introduce to its
business customers other value-added services such as education and training of
their employees on product usage and selection and consultation on health,
safety, and regulatory issues. Also, during this phase, the Company would
attempt to establish a national, private label brand of products to be sold
through the Company's distribution network. This consolidation would help build
economies of scale, enable the application of professional management
techniques, and expand its geographic reach. At the same time, where
practicable, the Company intends to retain local management to maintain customer
relationships.
Management's current business plan is highly dependent upon the
successful completion of a series of acquisition transactions and the ability of
the Company to attract the requisite financing on terms favorable to the
Company. Management believes that these plans are reasonable based upon the
fact that Management has already identified at least 5 companies in the United
States that fit the Company's acquisition profile and the initial success
management has achieved in acquiring financing for the Company. If for any
reason the Company is unable to obtain sufficient financing to complete its
program or is unsuccessful in identifying favorable acquisition targets,
negotiating acquisition transactions and completing its program, it is likely
that the Company would not be able to meet the revenue growth plans contained in
its current business plan. Should that occur, management would focus the
Company's efforts on internal growth and greater profitability through expanded
marketing programs and information technology and, in particular on its efforts
to market and sell its products through the Internet. Growth through these
means would be slower than that management believes is possible through
acquisitions. Factors external to the Company, including the performance of the
stock markets and the general availability of credit through banks and other
sources could adversely affect the ability of the Company to continue to effect
acquisition transactions.
G. Trademarks
The Company has no trademarks, patents or other licenses that are
material to the conduct of its business.
15
<PAGE>
H. Research and Development
The Company has no material research and development expenses.
I. Employees
The Company, through its subsidiaries, currently employs approximately
sixty (60) full-time employees. Four of the Company's drivers and warehousemen
are members of various collective bargaining units, with contracts extending to
September 1, 2001. The Company has not experienced any work stoppages and
believes its relationships with its employees are satisfactory.
J. Governmental Regulations
There are a number of government agencies that set standards and
regulations on the use and handling of chemical products and for sanitary
conditions. Included in these agencies are the Occupational Safety and Health
Administration (OSHA) which regulates chemicals related to occupational safety,
the Environmental Protection Agency (EPA) chartered to protect land, air, and
water, and the Consumer Product Safety Commission (CPSC) which regulates use and
labeling of chemicals and products. These agencies issue rulings that directly
affect the practices and purchases of the sanitary/janitorial supplier's
customers.
Maintenance and distribution of many of the Company's products are
subject to extensive regulation at the federal, state and local levels. In
particular, the Company is subject to regulations involving storage of hazardous
materials promulgated by the Federal Environmental Protection Agency and the
Occupational Safety and Health Act. As such, the Company's business is
dependent upon continued compliance with governmental regulations regarding the
operations of the Company's facilities. The Company believes that it is in
substantial compliance with all such regulations that are applicable to its
business. However, failure to maintain and demonstrate compliance with all such
regulations could result in the preclusion of handling certain product lines,
result in mandated clean up expenditures, and could have a material adverse
effect on the business and prospects of the Company.
The costs to the Company of complying with environmental regulations
are not material.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operations
During the 12-month period following the date of this Amendment to Form 10-
SB, the Company intends to substantially expand its business through the
completion of several acquisition transactions. (See Item 1. Description of
Business). An acquisition program such as that being
16
<PAGE>
conducted by the Company requires virtually constant access to capital in order
to enable the Company to purchase companies. Assuming the Company is successful
in identifying acquisition targets and completing acquisitions according to its
plan, the Company will require additional funding of approximately $2,000,000
prior to the end of calendar 1999.
In December of 1999, the Company began a new private placement of a minimum
of 200 units and a maximum of 800 units at $10,000 per unit, each unit
consisting of 100 shares of Series B Cumulative Convertible Preferred Stock and
1000 common stock purchase warrants. On December 15, 1999, the Company sold an
aggregate of 251.4 units to approximately 59 accredited investors for aggregate
proceeds to the Company of $2,514,000. The Company expects to continue the
private placement until December 31, 1999, or until all of the remaining units
are sold. (See "Description of Securities - Preferred Stock")
If the Company continues to be successful in implementing its business
plan, there will be a need for additional capital sometime in the first six
months of calendar 2000. If the Company is not successful in completing
acquisitions according to the schedule contemplated by its current business
plan, the Company's need for additional capital will be reduced or delayed.
There can be no assurance that the Company will be successful in attracting
the requisite capital on terms favorable to the Company or at all. Failure to
attract such capital would seriously impair the Company's ability to grow
according to its current plans and to attain its revenue and profit targets.
The Company has no material research and development expenditures nor does
it anticipate that it will have any such expenditures in the next 12 months.
The Company's additions to plant and equipment will be incident to the
acquisitions that have been previously discussed. If the Company is successful
in completing its acquisitions as planned, the number of employees of the
Company, including its subsidiaries, could expand to as many as approximately
250 by the end of calendar 2000.
Results of Operations
On January 15, 1999, Enviro-Clean of America, Inc. completed the
acquisition of Kandel & Son, which acquisition became effective as of January 1,
1999. Prior to the acquisition, Kandel & Son's fiscal year-end was August 31
and Enviro-Clean's year-end was December 31. Subsequent to the acquisition, the
Company adopted a December 31 year-end. As a result of the change in fiscal
year and the acquisition accounted for as a pooling of interest, the Company's
financial statements as of and for the periods ended December 31, 1998 and June
30, 1998 have been restated to retroactively combine Kandel & Son's results of
operations as if the acquisition had occurred at the beginning of the earliest
period presented.
The consolidated statements of operations, cash flows and stockholder's
equity/deficiency for the year ended December 31, 1998 reflect the results of
operations of Enviro-Clean for the period from December 9, 1997 (date of
inception) to December 31, 1998, combined with the results
17
<PAGE>
of operations of Kandel & Son for the year ended September 30, 1998. The
consolidated balance sheet as of December 31, 1998 reflects the financial
position of Enviro-Clean on that date combined with the financial position of
Kandel & Son as of September 30,1998. As a result of the companies having
different fiscal years, Kandel & Son's results of operations for the three-month
period ended December 31, 1998 and for the one month period ended September 30,
1997 have been excluded from the reported results of operations. Kandel's
revenue for the three-month period ended December 31, 1998 and the one-month
period ended September 30, 1997 was $443,142 and 146,526, respectively. Kandel's
net income for the three-month period ended December 31, 1998 and the one-month
period ended September 30, 1997 was $27,150 and $4,921, respectively. Such
amounts are comparable to the results of operations and revenue of Kandel
expected on an annualized basis.
Results of operations for the six-month period ended June 30, 1999 and
1998:
The net sales increased $902,924 for the six-month period ended June 30,
1999 ("1999") as compared to the six-month period ended June 30, 1998 ("1998")
from $919,451 to $1,822,375. This increase is attributable to NISSCO being
consolidated with the Company in 1999. Net sales of Kandel & Son Subsidiary are
comparable for each period.
The gross profit percentage increased from 46% for 1998 to 53% for 1999.
This increase is attributable to the inclusion of NISSCO in 1999. NISSCO
averages a gross profit percentage of approximately 70% because it sells
services rather than products. The gross profit percentage for Kandel decreased
slightly from 1998 to 1999 due to competition in Kandel & Son's market; however,
NISSCO's gross profit percentage offsets this decrease.
The operating expense increased from $415,860 for 1998 to $977,245 for
1999, approximately 135%. The majority of this increase, approximately
$450,000, was due to the inclusion of NISCCO in 1999. Additionally, there was
an amortization of goodwill booked on the acquisition of NISSCO of approximately
$149,000. Kandel & Son's expenses were comparable between 1999 and 1998.
The Company had a net loss in 1999 of $76,052, or $.03 per share, as
compared to net income of $6,929, or $.00 per share in 1998. If the
amortization of goodwill, a non-cash expense, were eliminated in 1999, the
Company would have had a net income of approximately $73,000 in 1999.
Liquidity and Capital Resources
The Company's only activities in the year ended December 31, 1998 consisted
of extensive research, developing and refining of its business plan, sales of
its securities to raise initial capital, the placing of deposits for the NISSCO
acquisition and related administrative expenses, including professional fees.
The Company has funded its requirements for working capital and
acquisitions through a series of equity private placements and the issuance of
long-term debt. During the six-month period
18
<PAGE>
ended June 30, 1999, the Company issued a total of 370,000 shares of Common
Stock for $925,000. In addition, as of June 1, 1999, the Company issued units
consisting of 12.75% promissory notes due April 1, 2002 and common stock
purchase warrants in the aggregate amount of $3,000,000. The Company's only
significant use of cash was the balance of cash paid for the NISSCO and Kandel
acquisitions of $652,451.
For the six-month period ended June 30, 1999, the Company's cash flows from
operations was positive $331,721, as a result of a net loss of $76,052 and
adjustments to arrive at cash provided by operating activities of depreciation
of $22,556, amortization of goodwill of $148,861 and amortization of note
discount of $19,961, a decrease in accounts receivable of $36,961, a decrease in
inventory of $24,613 and increases in accounts payable and income taxes payable
of $176,550 and $3,102, respectively, offset by an increase in prepaid expenses
of $24,831.
The Company expects its capital requirements to increase for the remainder
of 1999 and for 2000 as it continues its acquisition program and invests in
expanded administrative and sales and marketing infrastructure to support
increasing sales volume. The Company's future liquidity and capital funding
requirements will depend on many factors, including the extent to which the
Company is successful in implementing its acquisition program, and the extent to
which the Company is able to raise additional funds through equity and debt
issuances.
The Company intends to structure its next financing transaction as a
private offering of convertible preferred stock. Until the terms of such
offering are set, it is not possible to determine the number of shares of the
Company's Common Stock that may be issuable upon conversion of the preferred
stock. It is also impossible currently to determine the number of shares of
Common Stock that will be issuable to Thomas B. Haines in connection with the
purchase by the Company of NISSCO. Under the terms of Mr. Haines' agreement
with the Company, the Company is obligated to issue additional shares of Common
Stock to Mr. Haines in the event that the bid price per share of the Company's
Common Stock is less than $5.00 for the ten (10) trading days immediately
preceding January 15, 2001 (the "Average Bid Price Per Share"). The number of
shares to be issued is equal to the number of shares necessary so that the
dollar amount of additional shares, valued at the Average Bid Price Per Share,
issued to Mr. Haines on January 15, 2001, is equal to $2,500,000. The Company
is authorized to issue 20,000,000 shares of common stock, par value $.001 per
share ("Common Stock"), of which 4,401,000 shares are currently issued and
outstanding as of December 1, 1999.
Item 3. Description of Property.
(a) The Company's executive offices are located at 211 Park Avenue, Hicksville,
NY 11801, where Kandel & Son's offices are located. The Company also
maintains offices at the offices of CIC at 1023 Morales Street, San
Antonio, TX 78207. At this time the Company does not pay rent at either
location, as Kandel & Son and CIC are the lessees for the respective
premises. NISSCO and Kandel & Son currently lease their properties from
unrelated parties and CIC and Superior lease their facilities from their
former owners. Management of the Company believes that the rental rates
for each of these facilities is at
19
<PAGE>
least as favorable as market terms. Combined rent expense for NISSCO,
Kandel & Son, CIC and Superior is estimated to be approximately $463,000
for the next 12 months.
(b) The Company does not invest in real estate, other than as incident to its
business.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners
The following information relates to those persons known to the Company to
be the beneficial owner of more than 5% of the Common Stock, the only class of
voting securities of the Company outstanding, as of January 1, 2000.
<TABLE>
<CAPTION>
NAME AND AMOUNT AND
ADDRESS OF NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNER % OF CLASS
- ---------------- ---------------- ----------
<S> <C> <C>
Richard Kandel
c/o Enviro-Clean of America, Inc. 2,850,400 /1/ 57.57%
211 Park Avenue
Hicksville, NY 11801
NAME AND AMOUNT AND
ADDRESS OF NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNER % OF CLASS
- ---------------- ---------------- ----------
Steven C. Etra
c/o Manufacturers Corrugated Box Co., Inc. 529,554/2/ 11.22%
5830 57/th/ Street
Maspeth, NY 11378
</TABLE>
/1/ Includes 500,000 shares of Common Stock issuable pursuant to conversion
rights of Series A Stock (as defined herein), 24,000 shares of Common Stock
issuable upon exercise of warrants held by Kara Kandel, daughter of Richard
Kandel and 26,400 shares of Common Stock issuable upon exercise of warrants
held by Ross Kandel, son of Richard Kandel.
/2/ Includes 125,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Etra; 70,000 shares of Common Stock issuable pursuant to
conversion rights of Series E Stock (as defined herein); 20,000 shares of
Common Stock held by, and 11,200 shares of Common Stock issuable upon
exercise of warrants held by, and 8,000 shares of Common Stock issuable
pursuant to conversion rights of the Series B Stock held by, Lances
Property Development Pension Plan, a company 50% owned by Mr. Etra; 6,000
shares of Common Stock held by, 15,400 shares of Common Stock issuable upon
exercise of warrants held by, and 26,000 shares of Common Stock issuable
pursuant to conversion rights of the Series B Stock held by, Blaire Etra,
wife of Mr. Etra; 12,200 shares of Common Stock issuable upon exercise of
warrants held by, and 10,000 shares of Common Stock issuable pursuant to
conversion rights of the Series B Stock held by, Irving Etra Family Trust,
which Mr. Etra is a beneficiary; 118,500 shares of Common Stock held by,
6000 shares of Common Stock issuable upon exercise of warrants held by, and
12,000 shares of Common Stock issuable pursuant to conversion rights of the
Series B Stock held by, SRK Associates, a company controlled by Mr. Etra;
and 25,000 shares of Common Stock issuable upon exercise of options granted
to SRK Associates.
20
<PAGE>
<TABLE>
<S> <C> <C>
Randall K. Davis
c/o Enviro-Clean of America, Inc. 420,000 /3/ 8.71%
1023 Morales Street
San Antonio, TX 78207
Thomas B. Haines
c/o Nissco/Sunline, Inc. 250,000 /4/ 5.55%
14848 Old US 41
#13 Sunburst Center, Naples, FL 34110
</TABLE>
(b) Security Ownership of Management
As of January 1, 2000, the number of shares of Common Stock of the
Company owned by the directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
Richard Kandel 2,850,400/5/ 57.57%
/c//\\o \\ Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, NY 11801
Steven C. Etra 529,554/6/ 11.22%
/c//\\o \\Manufacturers Corrugated Box Co., Inc.
5830 57/th/ Street
Maspeth, NY 11378
Randall K. Davis 420,000/7/ 8.71%
/c//\\o \\Enviro-Clean of America, Inc.
1023 Morales Street
San Antonio, TX 78207
Thomas B. Haines 250,000/8/ 5.55%
c/o Nissco/Sunline, Inc.
14848 Old US 41
</TABLE>
/3/ Includes 100,000 shares of Common Stock held by Colnic Investment
Corporation, which is controlled by Randall K. Davis; 250,000 shares of
Common Stock issuable pursuant to conversion rights Series D Stock (as
defined herein) held by Mr. Randall Davis; 70,000 shares of Common Stock
issuable pursuant to conversion rights of Series D Stock held by Charles H.
Davis, father of Randall K. Davis, which Randall K. Davis disclaims any
beneficial interest therein.
/4/ Excludes 250,000 shares of Common Stock to be issued on January 1, 2000 and
500,000 shares of Common Stock (subject to adjustment) to be issued on
January 1, 2001.
/5/ See FN 1 above.
/6/ See FN 2 above.
/7/ See FN 3 above.
21
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
#13 Sunburst Center
Naples, FL 34110
Steven Haynes 50,000/9/ 1.11%
c/o Superior Chemical & Supply,
Inc.
1038 West Main Street
Bowling Green, KY 42101
Barry J. Gordon 30,500/10/ .67%
c/o American Fund Advisors
1415 Kellum Place, Suite 205
Garden City, NY 11530
Gary C. Granoff 27,000/11/ .60%
c/o Ameritrans Capital Corp.
747 Third Avenue, Suite 4C
New York, NY 10017
All officers and directors 4,157,454 73.37%
As a group
</TABLE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following is biographical information regarding the executive officers
and directors of the Company. Directors of the Company serve for a term of one
year or until their successors are elected. Executive officers are appointed
by, and serve at the pleasure of, the Board.
The executive officers and directors of the Company are:
Name Age Position
Richard Kandel 47 Chairman, CEO, and Treasurer
Randall K. Davis 36 President and Director
Steven C. Etra 51 Secretary and Director
- -------------------------------------------------------------------------------
/8/ See FN 4 above.
/9/ Represents 50,000 shares of Common Stock held in the escrow account and to
be granted in five annual installments, subject to adjustments.
/10/ Includes 20,500 shares of Common Stock issuable upon exercise of warrants,
and 5,000 shares of common Stock issuable pursuant to conversion rights of
the Series B Stock.
/11/ Includes 10,000 shares of common Stock issuable pursuant to conversion
rights of the Series B Stock and 5,000 shares of Common Stock issuable
upon exercise of warrants held by Mr. Granoff; 6,000 shares of Common
Stock to be issued upon exercise of warrants held by Leslie Granoff, wife
of Gary C. Granoff, and 6,000 shares of Common Stock issuable upon
exercise of warrants held by Dapary Management Corp., a company controlled
by Mr. Granoff.
22
<PAGE>
Barry J. Gordon 54 Director
Gary C. Granoff 51 Director
Richard Kandel, 47, has served as the Chairman and Chief Executive Officer
of the Company from September 1999 to the present. Mr. Kandel has served as
the Company's Treasurer since September of 1999. Since July of 1999, Mr. Kandel
has served as Chairman of the Board of b2bstores.com, Inc., a business to
business full service eCommerce mail mall on the Internet. He graduated in 1974
from Michigan State University with a Bachelor of Science Degree. From 1974
until 1998, Mr. Kandel was the owner and president of Kandel & Son, a sanitary
supply distributor in the New York metropolitan region. In January of 1999, Mr.
Kandel sold Kandel & Son to the Company. Mr. Kandel is also an owner/director
of Camp Pontiac LLC, an eight-week summer sports camp for over 400 boys and
girls. In addition, Mr. Kandel is the founder and chairman of No Small Affair,
a New York/Florida-based all volunteer organization. This foundation provides
events, parties, and outings for thousands of homeless, physically or
emotionally challenged.
Randall K. Davis, 36, has served as a Director and President of the Company
from September 1999 to the present. From March 1999 to August 1999, Mr. Davis
served as Vice President of the Company. Mr. Davis graduated from the
University of Texas in Austin in 1985 with a Bachelor of Arts Degree. From May
of 1985 until 1999, Mr. Davis was the co-owner and President/CEO of Davis
Manufacturing Company, whose holdings included Sanivac, Inc., and Cleaning Ideas
Inc. Davis Manufacturing Company was one of the largest manufacturers of
commercial cleaning products in South Texas and had been in operation since
1929. In August of 1999, Mr. Davis, along with family members, sold the Davis
family of companies to the Company. Mr. Davis is also the managing partner of
Colnic Investment Corp., a private investment company, that invests in private
and publicly traded companies. Mr. Davis also serves on the boards of The Texas
Manufacturers Assistance Center, Cystic Fibrosis Foundation and Oakwell Farms
Association. Mr. Davis spends about 80% of his working hours in fulfilling his
duties at the Company
Steven C. Etra, 51, has served as a Director of the Company from March 1999
to the present. Mr. Etra has served as the Company Secretary from September
1999 to the present. Mr. Etra has been the Sales Manager of Manufacturers
Corrugated Box Company since September of 1970, a company owned by Mr. Etra's
family for more than 75 years. Additionally, Mr. Etra has been a director of
Elk Associates Funding Company ("Elk") since November of 1995. Elk is a
publicly traded NASDAQ company under the symbol of "EKFG", with an investment
portfolio totaling $45 million. Since June 1996, Mr. Etra has also been a
director of Gemini Capital, an automobile finance company.
Barry J. Gordon, 54, has served as a Director of the Company from September
1999 to the present. Mr. Gordon has over 28 years of investment experience.
After several years with New York Hanseatic Corporation as a Senior Security
Analyst specializing in aviation and technology, Mr. Gordon joined National
Aviation & Technology Corporation as a Portfolio Manager in 1973. He was
instrumental in the formation of American Fund Advisors in 1979 and is now
Chairman and President. Mr. Gordon is also President of John Hancock Global
Technology Fund. In addition, he is Chairman and Managing Partner of the New
Jersey Cardinals, a Class A affiliate of the St. Louis
23
<PAGE>
Cardinals and Chairman and Managing Partner of the Norwich Navigators, a Class
AA affiliate of the New York Yankees. Mr. Gordon serves as a Director of Robocom
Systems, Inc. and Winfield Capital Corp., is a shareholder of the General
Partnership that operates a hotel, and won the 1992 Long Island Entrepreneur of
the Year Award for Financial Services. Mr. Gordon has been featured in both
televisions and print mediums including Good Morning America, Forbes Magazine,
CNBC, The Wall Street Journal, The Chicago Tribune, Fortune, and Newsday. Mr.
Gordon has also appeared on the CBS, ABC, and NBC Evening News. Mr. Gordon holds
an MBA in Finance from Hofstra University and a BBA in Marketing from the
University of Miami.
Gary C. Granoff, 51, has served as a Director of the Company from September
1999 to the present. Mr. Granoff is a Chairman of the Board and President of
Ameritrans, a Business Development Company under the Investment Company Act of
1940 (in formation) since 1998, as well as Elk Associates Funding Corporation
("Elk"), a Small Business Investment Company, licensed by the U.S. Small
Business Administration since July 1979, where he has served as President since
its incorporation in 1979, as its chairman of the board since December 1995.
Elk is also a Business Development Corporation and is registered as an
Investment Company under the Investment Company Act of 1940. Mr. Granoff has
been a practicing attorney for the past twenty-six years and is presently an
officer and stockholder in the law firm of Granoff, Walker & Forlenza, P.C. Mr.
Granoff is a member of the bar of the State of New York and the State of Florida
and is admitted to the United States District Court of the Southern District of
New York. Since 1983, Mr. Granoff is also sole stockholder and President of GCG
Associates, Inc., an investment consulting firm. He has served as the President
and is the sole stockholder of Seacrest Associates, Inc., a hotel operator,
since August 1994. Mr. Granoff has also been a director and President since
June 1996 of Gemini Capital Corporation, a company primarily engaged in the
business of making consumer loans. In February 1998, Mr. Granoff was elected to
and is presently serving as a trustee of the Board of Trustees of The George
Washington University. Mr. Granoff holds a Bachelor of Business Administration
degree in Accounting and a Juris Doctor degree (with honors) from The George
Washington University.
Thomas B. Haines and Robert W. Moehler, formerly directors of the Company,
resigned effective July 12, 1999 and June 30, 1999, respectively, so that board
seats might be freed up for those who will be more intimately involved in the
Company's ongoing growth and financial activities.
Item 6. Executive Compensation.
The Company has entered into an employment agreement (the "Kandel
Agreement") with Richard Kandel ("Kandel") for a term of three years, whereby
Kandel's salary for the year ending December 31, 1999, is $100,000 per annum,
and shall increase by $100,000 per annum on January 1, 2000 and January 1, 2001.
The employment period shall automatically renew annually for a new three-year
term unless prior to the end of the first year of each three-year term, either
the Company or Kandel provides notice to the other party to the Kandel Agreement
of its intention not to extend the employment period beyond the then current
three-year term. Such notice shall be provided not later than 30 days prior to
the end of such one-year period.
24
<PAGE>
In addition to the base compensation, the Kandel Agreement provides for an
annual bonus plan whereby the Company agrees to pay Kandel an annual bonus
payment for each of the fiscal years during the time of employment equal to
fifteen thousand ($15,000) dollars upon the occurrence of each of the following
events:
(a) listing of the Company's shares on NASDAQ, a comparable inter-dealer
automated quotation system, or a recognized exchange;
(b) the Company achieves revenues, as defined in the agreement, for any
monthly period that would, if annualized, equal $50 million or more
in revenues;
(c) the Company achieves revenues for any monthly period that would, if
annualized, equal $75 million or more in revenues; or
(d) the Company achieves revenues for any monthly period that would, if
annualized, equal $100 million or more in revenues.
Kandel's agreement may terminate upon various occurrences listed in the
Kandel Agreement. If the Company terminates Kandel's employment without cause or
for reason other than as provided in the Kandel Agreement, or if such employment
is terminated by Kandel for "Good Reason" as defined in the Kandel Agreement,
then the Company shall pay Kandel his full salary, bonus and benefits through
the date of termination, or, in lieu of salary payments, the Company must pay as
severance pay an amount equal to the remainder of the salary, bonus and value of
fringe benefits which Kandel would be entitled to receive for the remaining
employment period. "Good Reason" is defined as when there is a change in control
of the Company and one or more of the following events occurs:
(a) the assignment to Kandel of any duties inconsistent with his status
as Chief Executive Officer of the Company, his removal from the
position of Chief Executive Officer of the Company, or a substantial
alteration in the nature or status of his responsibilities from those
in effect immediately prior to the Change in Control;
(b) a reduction by the Company of Kandel's annual base salary in effect
on the date immediately prior to the change in control;
(c) the relocation by the Company's principal executive offices to a
location more than twenty-five miles from its present location or a
requirement that Kandel shall be based anywhere other than the
Company's principal executive offices except for required travel on
the Company's business to an extent substantially consistent with his
business travel obligations prior to the change in control;
(d) the failure by the Company to continue in effect any bonus plan in
which Kandel was participating immediately prior to the change in
control; or
25
<PAGE>
(e) the failure by the Company to continue to provide Kandel with
benefits at least as favorable as those enjoyed by him under any of
the Company's pension, life insurance, medical, health and accident,
disability, deferred compensation or savings plans in which he was
participating at the time of the change in control, the taking of any
action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive him of any material fringe
benefit enjoyed by him at the time of the change in control, or the
failure by the Company to provide Kandel with the number of paid
vacation days to which he was entitled at the time of the change in
control.
The Company entered into an employment agreement with Randall K. Davis
("Davis") for a term of three years whereby Davis' salary for the year ending
December 31, 1999 is $50,000 and shall increase by $100,000 per annum on January
1, 2000 and January 1, 2001. The employment period shall automatically renew for
one year unless prior to the end of the three-year term, or any renewal periods,
either the Company or Davis provides notice to the other party to the agreement
of its intention not to exceed the employment period beyond the then current
three-year term. Such notice shall be provided not later than 90 days prior to
the end of such three-year term or one-year renewal period, as the case may be.
In addition to the base compensation, the Company agrees to pay Davis an
annual bonus payment for each of the fiscal years during the employment period
equal to ten thousand ($10,000) dollars upon the occurrence of the same events
as described in the bonus description of Kandel's employment agreement.
If Davis is terminated without cause, or outside the termination provisions
of the agreement, Davis shall be entitled to the full salary, bonus, and
benefits through the date of termination of the agreement.
Davis has also entered into an employment agreement with CIC for a term of
five years at an annual salary of $50,000. Under the terms of this agreement,
Davis is eligible for annual bonuses to be determined by the board of directors
of CIC. If Davis' employment is terminated without cause, Davis is entitled to
severance pay equal to the amount of salary and bonuses for a period of six
weeks to twelve months, depending on Davis' length of employment at the
termination.
Steven C. Etra, a Director and Secretary of the Company, entered into a
consulting agreement with the Company dated March 1, 1999, for a term of one (1)
year. The agreement shall automatically be renewed for successive periods of one
(1) year unless either party gives written notice to the other of its intention
not to renew the agreement. Such notice shall be given at least sixty (60) days
prior to the end of the initial term or any renewal term thereof. Under the
consulting agreement, Mr. Etra is to receive a monthly fee of $2,000 for
financial public relations services.
The annual base compensation for each of Messrs. Kandel, Davis, Gorelick,
Haines and Haynes are:
Richard Kandel $100,000
26
<PAGE>
Randall K. Davis $100,000 (includes $50,000 in his capacity as
President of CIC)
Irwin Gorelick $ 90,000 (in his capacity as President of Kandel &
Son)
Thomas B. Haines $ 75,000 (in his capacity as President of NISSCO)
Stephen Haynes $ 40,000 (in his capacity as President of
Superior)
Neither Kandel, Davis, nor Mr. Haines received any compensation from the
Company during the year ended December 31, 1998. Kandel received a yearly
salary of $100,000 from Kandel & Son in his prior capacity as its president.
The Company intends to implement a stock incentive plan for its executive
management and employees in the future, but the terms and conditions of such
plan have not yet been determined. However, certain members of management of
the Company hold options to purchase Common Stock, which were not issued
pursuant to any option plan.
Item 7. Certain Relationships and Related Transactions.
The Company was founded on December 9, 1997. At the time of its founding,
The Strateia Group, Inc. ("Strateia") received 250,000 shares of Common Stock at
a price of $.01 per share. Kandel, Chairman, Chief Executive Officer and
Treasurer of the Company, received 2,300,000 shares of Common Stock at a price
of $.01 per share. Of Kandel's shares, 1.5 million shares were initially held
in the name of the Palmetto Group, Inc. pursuant to certain proposed financing
arrangements. When the Company was able to arrange financing on more favorable
terms than initially planned, the proposed financing was abandoned and such 1.5
million shares were returned to Kandel.
On January 26, 1998, Steven C. Etra, a Director and the Secretary of the
Company and SRK Associates, LLC, a company controlled by Steven C. Etra,
purchased 10,000 and 50,000 shares of Common Stock, respectively, for $.50 per
share in an offering in which 42 other investors also purchased Common Stock
upon the same terms.
On December 22, 1998, Steven C. Etra, a Director and the Secretary of the
Company purchased 70,000 shares of the Company's Series E Convertible Redeemable
Preferred Stock (the "Series E Stock") for $175,000. The Series E Stock were
created specifically for the purposes of Mr. Etra's investment and (i) have a
stated value of $2.50 per share, (ii) pay an annual dividend equal to 3% of the
stated value, (iii) are convertible into shares of Common Stock, par value $.001
per share, of the Company at a conversion price of $2.50 per share and (iv) may
be redeemed by the Company at any time after December, 2000, at a redemption
price of $3.50 per Series E Stock so redeemed. These conversion and redemption
prices are subject to adjustment in the event of recapitalization, stock splits
and other enumerated extraordinary corporate events.
Kandel, Chairman, Chief Executive Officer and Treasurer of the Company, was
formerly President and the principal stockholder of Kandel & Son, a company
which is currently a principal subsidiary of the Company. Thomas B. Haines, a
former Director of the Company, was formerly
27
<PAGE>
Chairman of NISSCO which is also currently a principal subsidiary of the
Company, and its NIPPCO division. The terms of the Kandel & Son and NISSCO
acquisitions were negotiated between Messrs. Kandel and Haines and the Board of
Directors of the Company, which at the time was comprised of Robert W. Moehler
and Mary Magourik.
The Company signed preliminary agreements to acquire all the issued and
outstanding capital stock of Kandel & Son in September of 1998 and of NISSCO in
October of 1998. Additional negotiations for both companies were finalized on
January 15, 1999. Pursuant to the agreements, the Company assumed $665,596 of
debt of Kandel & Son, consisting of amounts due and owing in respect of
principal and interest to (i) Citibank, N.A. of $99,914, (ii) miscellaneous
other debt of $183,329, and (iii) shareholder loans from Kandel totaling
$382,353 which the Company has paid. Kandel, as sole shareholder of Kandel &
Son, received (1) $684,404 (including prior deposits) in the form of cash and a
promissory note, and (2) 500,000 shares of Series A Convertible Preferred Stock
(the "Series A Stock"), a class of securities created specifically for the
Kandel & Son transaction. The promissory note described in (1) above has been
paid in full by the Company and no longer remains outstanding. The Series A
Stock (a) bear an annual dividend of 4%, and (b) are convertible into shares of
Common Stock of the Company at a conversion price of $5.00 per share.
Originally, the Series A Stock were redeemable by the Company at Kandel's option
at a redemption price of $5.00 per share at any time after January 15, 2001 and
the conversion price was $2.50 per share. However, Kandel, as the sole holder
of the Series A Stock, and the Company entered into an agreement effective on
September 30, 1999, in which the certificate of designation for the Series A
Stock would be amended to remove Kandel's ability to put the Series A Stock to
the Company and increased the conversion price from $2.50 to $5.00 per share.
Thomas B. Haines, as sole shareholder of NISSCO, received $500,000 in cash,
and 250,000 shares of Common Stock in connection with the sale of NISSCO to the
Company. In addition, Mr. Haines is to receive an aggregate of an additional
750,000 (subject to adjustment as described below) shares of Common Stock in
installments of 250,000 on January 15 of 2000, and 500,000 shares of Common
Stock on January 15, 2001. If on January 15, 2001, the average closing bid
price of the Company's Common Stock for the ten trading days immediately
preceding January 15, 2001 (the "Average Bid Price Per Share") is not at least
$5.00 per share, the Company shall issue additional shares of Common Stock to
Mr. Haines such that the aggregate value of the shares issued on January 15,
2001, calculated based on the Average Bid Price Per Share, shall be $2,500,000.
Strateia is an investment banking and management consulting firm that
specializes in initiating consolidation opportunities in fragmented industries.
Messrs. Kandel and Haines have invested, and may continue to invest, in
opportunities generated by Strateia, other than the Company.
Steven C. Etra, Director and Secretary of the Company, has entered into a
consulting agreement with the Company dated March 1, 1999 for a period of one
year pursuant to which Mr. Etra receives a monthly fee of $2,000 for financial
public relations services which includes
28
<PAGE>
assisting the Company in communicating with investment bankers, financial
analysts and potential investors.
The Company does not have a stock option plan, but has granted options to
several of its current and former Board members in consideration for their past
and present services. On April 15, 1999, the Company granted 125,000 options to
purchase shares of Common Stock to Steven C. Etra, a Board member, exercisable
immediately, at an exercise price of $3.50 per share; such options are to expire
after the sixth anniversary of the date of their grant.
On April 15, 1999, the Company granted 25,000 options to purchase Common
Stock, exercisable immediately, at an exercise price of $3.50 to SRK Associates,
LLC, a company controlled by Steven C. Etra, a Board member; such options are to
expire on the sixth anniversary of the date of their grant.
On April 15, 1999, the Company granted 25,000 options to purchase Common
Stock, exercisable immediately, at an exercise price of $4.25 per share to
Robert W. Moehler, a former Director of the Company; such options are to expire
on the third anniversary of the date of their grant.
In April and June of 1999, Colnic Investment Corp., a private investment
Company controlled by Davis, President of the Company and President of CIC,
purchased an aggregate of 100,000 shares of the Company's Common Stock at a
purchase price of $2.50 per share for an aggregate investment of $250,000. The
investments were made in two purchases of $125,000 each.
On June 1, 1999, Blair Etra, the wife of Steven C. Etra, Director and
Secretary of the Company, purchased one unit, consisting of one 12.75%
Subordinated Promissory Note in the principal amount of $10,000 and 2,400 common
stock warrants at an exercise price of $4.25 per share, in a private placement.
In July, 1999, the Company sold 10,000 shares of Common Stock to SRK
Associates, LLC, a company controlled by Steven C. Etra, a Director of the
Company, at a price of $2.50 per share for aggregate proceeds of $25,000.
In July, 1999, the Company sold 6,000 shares of Common Stock to Blair Etra,
wife of Steven C. Etra, a Director of the Company, at a price of $2.50 per share
for aggregate proceeds of $15,000.
On July 13, 1999, the Company issued 25,000 shares of Common Stock to
Harrington, Ocko & Monk, LLP, an outside counsel to the Company, at a price of
$5.00 per share in consideration for legal services rendered.
Effective August 1, 1999, the Company acquired CIC. Prior to its
acquisition by the Company, CIC was owned by Davis, President of the Company,
and his parents, Charles H. Davis and Carolyn Davis. According to the purchase
agreement, the consideration for the merger included: (a) $500,000 in cash; (b)
a secured promissory note in the original principal amount of
29
<PAGE>
$900,000 (the "Davis Note") payable to Charles H. Davis; and (c) 320,000 shares
of the Series D Cumulative Convertible Preferred Stock (the "Series D Stock"), a
class of securities created specifically for the transaction of which 250,000
shares are held by Davis and 70,000 shares are held by Charles H. Davis. In
connection with the merger, the Company entered into a Pledge and Security
Agreement to secure the payment of the Davis Note. Furthermore, the Company
granted piggyback registration rights for the shares of Common Stock into which
the Series D Stock is convertible.
In connection with the acquisition of CIC, CIC subsequently entered into
employment agreements for a period of five years beginning August 1, 1999 with
Davis, President of the Company, with an annual salary of $50,000 per year, and
with Charles H. Davis, father of Davis, with an annual salary of $15,000 per
year.
In connection with the purchase of CIC in August of 1999, CIC entered into
four leases to rent parcels of real estate. These leases include:
(a) a 5-year triple net lease for 1023 Morales Street in San Antonio,
Texas, for the administrative offices and manufacturing facilities at
an annual rental of $70,872, by and between CIC and Charles H. Davis;
(b) a 5-year triple net lease for 724 Perez Street in San Antonio, Texas,
for a warehouse and distribution facility at an annual rental of
$21,060, by and between CIC and Charles H. Davis;
(c) a 5-year triple net lease for 723 Perez Street in San Antonio, Texas,
for a warehouse at an annual rental of $29,592, by and between CIC
and Charles H. Davis; and
(d) a 5-year triple net lease for 401 Main Street in Kerrville, Texas,
for a Cleaning Ideas store at an annual rental of $60,000, by and
among CIC, Davis and his father, Charles H. Davis.
In August of 1999, the Company acquired Superior pursuant to a stock
purchase agreement with Stephen Haynes, the current President of Superior. The
acquisition documents provide that Mr. Haynes was to receive the following: (a)
$400,000 in cash; (b) a promissory note (the "Haynes Note") in the original
principal amount of $1,200,000, and bearing interest at a rate of 8% per annum,
and (c) escrowed consideration of 50,000 shares of Common Stock, to be issued in
five annual installments of 10,000 shares; each installment subject to
adjustments for not meeting annual financial thresholds.
The issuance of the escrowed shares are contingent upon Superior's ability
to achieve an earnings goal referred to as the "Target Amount" which is defined
as the pre-tax earnings of Superior amounting to $250,000 per annum, pro rated
for any period of less than one full year and increased by 5% for each year. If
this Target Amount is not met, the number of shares to be delivered to Mr.
Haynes will be equal to the product of (x) 10,000 multiplied by (y) a fraction,
the numerator which will be Superior's pre-tax income for the year and the
denominator which will be the Target Amount for the year. If Superior does not
meet the Target Amount in one year and
30
<PAGE>
exceeds the Target Amount in the following year, an amount equal to the excess
over the Target Amount may be applied to the prior year's Target Amount, in
which case a proportionate amount of shares withheld in the prior year would be
released to Mr. Haynes. However, in no event will the aggregate number of shares
in any two year period exceed 20,000.
Mr. Haynes is also to be paid an earn-out bonus for the years 1999
(partial), 2000, 2001 2002, 2003, and 2004 (partial) which is based on a portion
of the pre-tax earnings of Superior above the annual, increasing thresholds. The
Company will pay Mr. Haynes an amount equal to 25% of (i) the excess of the
Company's pre-tax earnings over the product of (x) $300,000 multiplied by (y)
a fraction, the numerator being the number of days from the closing date, August
17, 1999, to the end of the calendar year, and the denominator being 365, for
the year 1999; (ii) the excess of the Company's pre-tax earnings over $315,000
in the year 2000; (iii) the excess of the Company's pre-tax earnings over
$330,750 in the year 2001; (iv) the excess of the Company's pre-tax earnings
over $347,288 in the year 2002; (v) the excess of the Company's pre-tax earnings
over $364,652 for the year 2003; and (vi) the excess of the Company's pre-tax
earnings over the product of (x) $382,884.60 and (y) a fraction, the numerator
being the number of days from the beginning of the calendar year to the fifth
anniversary of the closing date, August 17, 2004, and the denominator being 365,
for the year 2004.
Mr. Haynes is also entitled to a yearly payment for five years beginning in
the year 2000 for 25% of the net, after tax profits for the five fiscal years
(including 1999) from sales of janitorial products similar to those sold by
Superior prior to its acquisition, made by the Company through its eCommerce
program, to customers located within a 60-mile radius of any of Superior's three
Kentucky locations.
The Haynes Note is payable in 12 equal installments of $100,000 and,
default of the note without cure during the 30-day cure period, permits Mr.
Haynes to exercise upon the collateral and causes the noncompetition provisions
contained in Mr. Haynes' employment contract to become void. The Haynes note is
secured by the accounts receivable and inventory of Superior, but is
subordinated to any bank, equipment finance company or other senior lender of
the Company or Superior and the Haynes Note is subject to prepayment by the
Company at any time.
Upon the acquisition of Superior, the Company, through Superior, came into
possession of certain real property located at 1038 West Main Street, Bowling
Green, Kentucky pursuant to a lease. This real property is held by ACH
Holdings, Inc., of which Stephen Haynes, President of Superior, owns an
interest. The property is leased by Superior for a five-year duration, which
expires on March 31, 2004, and may be extended an additional five years by
Superior. The annual rent of the premises is $30,000, payable in equal monthly
installments of $2,500.
On December 15, 1999, Blair Etra, the wife of Steven C. Etra, Director and
Secretary of the Company, purchased thirteen units, each unit consisting of 100
shares of Series B Preferred Stock and 1000 common stock warrants at an exercise
price of $5.00 per share, exercisable for a five year period upon issuance, in a
private placement, for $130,000.
31
<PAGE>
On December 15, 1999, SRK Associates, LLC, a company controlled by Steven
C. Etra, Director and Secretary of the Company, purchased six units, each unit
consisting of 100 shares of Series B Preferred Stock and 1000 common stock
warrants at an exercise price of $5.00 per share, exercisable for a five year
period upon issuance, in a private placement, for $60,000.
On December 15, 1999, Lances Property Development Pension Plan, a company
50% owned by Steven C. Etra, Director and Secretary of the Company, purchased
four units, each unit consisting of 100 shares of Series B Preferred Stock and
1000 common stock warrants at an exercise price of $5.00 per share, exercisable
for a five year period upon issuance, in a private placement, for $40,000.
On December 15, 1999, Irving Etra Family Trust, which Steven C. Etra,
Director and Secretary of the Company is a beneficiary, purchased five units,
each unit consisting of 100 shares of Series B Preferred Stock and 1000 common
stock warrants at an exercise price of $5.00 per share, exercisable for a five
year period upon issuance, in a private placement, for $50,000.
On December 15, 1999, Gary Granoff, a Director of the Company, purchased
five units, each unit consisting of 100 shares of Series B Preferred Stock and
1000 common stock warrants at an exercise price of $5.00 per share, exercisable
for a five year period upon issuance, in a private placement, for $50,000.
On December 30 1999, Barry Gordon, a Director of the Company, purchased
two and a half units, each unit consisting of 100 shares of Series B Preferred
Stock and 1000 common stock warrants at an exercise price of $5.00 per share,
exercisable for a five year period upon issuance, in a private placement, for
$25,000.
The Company, Richard Kandel, Randall Davis and Steven C. Etra are the
principal shareholders of b2bstores. Since its inception in June 1999,
b2bstores' working capital requirements had been satisfied through capital
contributions made by the Company, Richard Kandel, Randall Davis and Mr. Etra
and loans made to it by the Company. In June 1999, the Company, Kandel, Davis,
Mr. Etra, and others purchased an aggregate of 3,410,000 shares of b2bstores
common stock for $27,500 in the form of $11,000 in cash and the transfer to
b2bstores of all of rights and interest in www.b2bstores.com and all related
assets, including intellectual property.
In June, July, November, December 1999 and January 2000, the Company made
loans to b2bstores in the aggregate principal amount of approximately
$1,199,836. These loans bear interest at the rate of 8% per annum and are
repayable on the earlier of (a) March 1, 2000 and (b) the date of the initial
public offering by b2bstores. In August 1999, b2bstores consummated a
financing in which it raised proceeds of $625,000 through the sale of 310,000
shares of its common stock to Kandel, Mr. Etra and Mr. Etra's affiliates.
As of December 31, 1999, the Company owns 1,860,000 shares of the b2bstores
common stock, constituting approximately 49.7 % of the total outstanding
b2bstores common stock while
32
<PAGE>
Kandel, Davis and Steven C. Etra each owns additional 1,054,000 shares (30.7%),
310,000 shares (8.3%) and 147,560 shares (4.2%) of b2bstores common stock,
respectively.
The Company has also furnished some of b2bstores' vendors with guarantees
with respect to b2bstores' obligations to them. As of January 1, 2000,
b2bstores owes in aggregate less than $10,000 to such vendors to whom the
Company provided guarantees. The Company has also provided a guaranty for
b2bstores' lease and signed such lease as the guarantor. The b2bstores' lease
expires on August 31, 2001 with yearly rent payment totaling $75,000. The
Company received no compensation or other consideration for acting as b2bstores'
guarantor.
Richard Kandel, the Chairman and Chief Executive Officer of the Company,
serves as the chairman of the board of b2bstores.com, Inc. He has entered into
a three-year employment agreement with b2bstores effective November 1999.
Pursuant to the terms of such agreement, Mr. Kandel will be required to devote
50% of his business time to the operations of b2bstores. Kandel's position as a
director, officer and shareholder of each of the Company and b2bstores may
create or appear to create potential conflicts of interest when he is faced with
decisions that could have different implications for the Company and b2bstores.
These decisions may relate to:
. potential acquisitions of businesses;
. intercompany agreements;
. the establishment of e-commerce marketing arrangements and other
areas of competition;
. the issuance or disposition of securities; and
. the election of directors.
Given Kandel's roles with both the Company and b2bstores and the
potentially competitive position of each business, he may not always be able to
align his interest with the interests of both businesses. The manner in which
any conflict of interest in any situation is resolved may not be the manner that
would be most beneficial to the interests of the shareholders of the
Company.
Pursuant to the agreement dated October 1, 1999 (the "b2b Agreement")
between the Company and b2bstores, b2bstores has implemented the Company's
initial eCommerce web site (http://www.b2bgoods.comwww.b2bstores.com). The
----------------------------------------
Company's "b2bgoods.com" web site currently offers about 25,000 janitorial and
sanitary products and other office supply products for electronic purchases.
B2bstores also provides the Company with web site transaction processing and e-
commerce services for its b2bgoods.com web site through b2bstores' e-commerce
backbone. For these services, b2bstores is to receive from the Company a fee
equal to the greater of (a) 10% of the Company's revenues generated through e-
commerce activities conducted through www.b2bgoods.com or (b) 50% of the
Company's gross profits generated through e-commerce activities conducted at
www.b2bgoods.com.
33
<PAGE>
The b2b Agreement also provides that b2bstores will host on-line stores at
its web site (http://www.b2bstores.com), through which the Company's products
------------------------
will be offered for electronic purchases. All of the Company's products
purchased through b2bstores' web site are to be distributed directly to
b2bstores' customers by the Company through its distributor network. The Company
will charge b2bstores a price for each product equal to its cost for the product
and will receive 2-5% of the gross payment that the end-users will make for each
product sold at such on-line stores hosted on the b2bstores web site. The
Company has also agreed that, in connection with its eCommerce program, the
Company will sell its products on the Internet only through the b2bgoods.com or
the b2bstores.com site until it owns less than 10% of b2bstores' outstanding
common stock.
Effective on September 30, 1999, the Company entered into an agreement with
Kandel, Chairman, Chief Executive Officer and Treasurer of the Company, pursuant
to which Kandel, as sole holder of the Series A Stock, consented to the
amendment of the Certificate of Designation for the Series A Stock to remove the
ability of the holder of the Series A Stock to put the Series A Stock to the
Company at any date after January 15, 2001 and to increase the conversion price
of the Series A Stock from $2.50 to $5.00.
Item 8. Description of Securities.
Common Stock
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
par value $.001 per share, of which 4,501,000 shares are outstanding as of
December 31, 1999. Holders of Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of preferred stock which may from time to time be outstanding, if
any, holders of Common Stock are entitled to receive ratably, dividends when,
as, and if declared by the Board of Directors out of funds legally available
therefor and, upon the liquidation, dissolution, or winding up of the Company,
are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preferences on the
preferred stock, if any. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities. The
outstanding Common Stock is validly authorized and issued, fully paid, and
nonassessable.
Holders of Common Stock are not entitled to accumulate their votes for the
election of directors or otherwise. Accordingly, the holders of a majority of
the Common Stock present at a meeting of shareholders will be able to elect all
of the directors of the Company and the minority shareholders will not be able
to elect a representative to the Company's Board of Directors. Since the Board
of Directors elects officers and effectively controls the day to day operations
through control of the Company management, current management is effectively
able to control the outcome of all matters submitted to the Company's
shareholders for approval, including extraordinary transitions such as mergers
or sale of all or substantially all the assets of the Company.
34
<PAGE>
As of December 31, 1999, the Company has reserved an additional 4,935,000
shares of Common Stock, 4,185,000 of which underlie outstanding convertible
preferred stock, options, and warrants, and 750,000 of which are reserved for
contractual obligations.
(a) The underlying shares are reserved pursuant to the following:
(1) 500,000 shares reserved for the conversion of the Series A
Convertible Preferred Stock;
(2) 70,000 shares reserved for the conversion of the Series E
Convertible Redeemable Preferred Stock;
(3) 320,000 shares reserved for the conversion of the Series D
Cumulative Convertible Preferred Stock;
(4) 720,000 shares reserved for exercise of warrants sold as part
of a unit offering in March 1999;
(5) 150,000 shares reserved for options granted in April 1999 to
Steven C. Etra (125,000), SRK Associates, LLC (25,000), and
Robert Moehler (25,000).
(6) 1,600,000 shares reserved for the conversion of the Series B
Cumulative Convertible Preferred Stock; and
(7) 800,000 shares reserved for the exercise of warrants.
(b) The Company has reserved 750,000 shares due to contractual
obligations in connection with the acquisition of NISSCO. These shares are
consideration to Thomas B. Haines, who was the sole shareholder of NISSCO before
the acquisition.
Preferred Stock
Under the Company's Articles of Incorporation, the Board of Directors of
the Company is authorized to designate, and cause the Company to issue, up to
five million (5,000,000) shares of preferred stock of any class or series,
having such rights, preferences, powers and limitations as the Board shall
determine.
The Company's Board of Directors has authorized and issued 500,000 shares
of its Series A Stock to Kandel in conjunction with the acquisition of Kandel &
Son; authorized and issued 70,000 shares of its Series E Stock to Steven C. Etra
in consideration of his investment of $175,000 in the Company; and authorized
320,000 shares of its Series D Stock, of which 70,000 shares were issued
35
<PAGE>
to Charles Davis and 250,000 shares were issued to Davis, in connection with the
acquisition of Cleaning Ideas.
In October of 1999, the Company also authorized issuance of up to 80,000
shares of Series B Cumulative Convertible Preferred Stock (the "Series B Stock")
in connection with the private placement of securities in December of 1999. On
December 15, 1999, the Company sold an aggregate of 251.4 units, each unit
consisting of 100 shares of Series B Stock and 1000 common stock purchase
warrants, to approximately 59 accredited investors for aggregate proceeds to the
Company of $2,514,000. On December 30, 1999, the Company sold additional 2.5
units to Barry Gordon, a Director of the Company, for $25,000. This private
placement was closed as of December 31, 1999.
The Series B Stock has a stated value of $100, is entitled to dividends at
a rate of 10% per annum., and has a maturity of five years from the issuance.
The Series B Stock is convertible into Common Stock by the holder at a
conversion price of $5.00 exercisable any time after issuance. The Company may
convert the Series B Stock upon the occurrence of certain events, including the
Company's Common Stock trading at a price of at least $7.50 for 20 consecutive
trading days. The Series B Stock is entitled to "piggyback" registration rights
and is senior to all prior series of preferred stock with the exception of the
Series D Cumulative Convertible Preferred Stock.
The Series A Stock (i) pay an annual dividend of 4%, and (ii) are
convertible into Common Stock at a conversion price of $5.00 per share of Common
Stock.
The Series E Stock (i) pay an annual dividend of 3%, (ii) are convertible
into Common Stock at a conversion price of $5.00 per share of Common Stock, and
(iii) may be redeemed at the option of the Company at any time after December
15, 2000 at a redemption price of $3.50 per share.
The Series D Stock (i) pay an annual dividend of 8.75%, (ii) are
convertible into Common Stock at a conversion price of $5.00 per share of Common
Stock and (iii) may be redeemed at the option of the Company at any time at a
redemption price of $5.00, plus any accrued and unpaid dividends per share.
The Series A and D Stock are convertible based on a conversion price of
$5.00 per share of Common Stock. The stated price of the Series A and D Stock
is $5.00 per share, thereby converting each Series on a one to one basis.
The Series E stock has a conversion price of $2.50 per share of Common
Stock and a stated price of $2.50 per share of Series E stock, thereby
converting such Preferred Stock on a one to one basis.
The Series B stock has a conversion price of $5.00 per share of Common
Stock and a stated price of $100 per share of Series B stock, thereby converting
such Preferred Stock on a twenty to one basis.
36
<PAGE>
The Series A, E, D and B stock all have basic anti-dilution provisions, of
which the circumstances and mechanisms of dilution are as follows:
(1) If the Company, at any time while any shares of preferred stock are
outstanding, (a) shall pay a stock dividend or otherwise make any
distributions on shares of its junior securities payable in shares of
its capital stock (whether payable in shares of its Common Stock or
of capital stock of any class), (b) subdivide outstanding shares of
Common Stock into a larger number of shares, or (c) combine
outstanding shares of Common Stock into a smaller number of shares,
the conversion price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock of the
Company outstanding before such event and of which the denominator
shall be the number of shares of Common Stock outstanding after such
event.
(2) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not
to Holders of Preferred Stock) evidences of its indebtedness or
assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in other provisions of the
Certificates of Designation), then in each such case the Conversion
Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Conversion Price
in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution
by a fraction of which the denominator shall be the conversion price
per share of Common Stock, and of which the numerator shall be such
conversion price per share of the Common Stock on such record date
less the then fair market value at such record date of the portion of
such assets or evidences of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board of
Directors in good faith; provided, however, that in the event of a
-------- -------
distribution exceeding ten percent (10%) of the assets of the
Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing, such
process defined in the certificates of designation.
The Board could, in the future, authorize and cause the Company to issue up
to an additional 4,030,000 shares of preferred stock of one or more series or
classes, having rights, preferences and powers as determined by the Board, which
could be senior to those of the Common Stock, including the right to receive
dividends and/or preferences upon liquidation, dissolution or winding-up of the
Company in excess of, or prior to, the rights of the holders of the Common
Stock. This could have the effect of materially impairing the rights of the
holders of the Common Stock to receive such dividends or preferential payments
and/or of reducing, or eliminating, the amounts that would otherwise have been
available for payment to the holders of the Common Stock.
Provisions in the Company's articles of incorporation and bylaws may have
the effect of delaying or preventing a change of control or changes in the
Company's management that a stockholder might consider favorable. These
provisions include, among others:
37
<PAGE>
. the right of the board to elect a director to fill a space created by
the expansion of the board;
. the ability of the board to alter the Company's bylaws; and
. the ability of the board to issue series of preferred stock without
stockholder approval.
PART II
Item 1. Market for Common Equity and Related Stockholder Matters.
(a) Market Information
The Company's Common Stock was approved for quotation on the NASD OTC
Bulletin Board under the symbol "EVCL" and began trading on May 21, 1998.
Pursuant to the amended NASD Rule 6530 and 6540, which became effective on
January 4, 1999, the Company's Common Stock was de-listed from NASD OTC Bulletin
Board effective on November 18, 1999, due to the Company's failure to clear with
the Securities and Exchange Commission ("SEC") all of its outstanding comments
regarding this registration statement by the "phase-in" deadline of November 17,
1999, as set by the NASD OTC Compliance Unit. Upon de-listing from the OTC
Bulletin Board, the Company's Common Stock became eligible for trading in the
"pink sheets" published by the National Quotation Bureau, Inc. ("Pink Sheets").
There is currently a limited trading market for the Common Stock. The high
and low closing bid prices for the shares of the Company's Common Stock, as
reported by National Quotation Bureau, LLC are listed in the following chart.
These prices are between dealers and do not include retail markups, markdowns or
other fees and commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
1998 High Low
<S> <C> <C>
May 21 - June 30 $3.25 $ .25
July 1 - September 30 $3.75 $1.50
October 1 - December 31 $4.25 $2.50
1999 High Low
January 1 - March 31 $5.625 $3.50
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
April 1 -June 30 $5 $3.25
July 1- September 30 $6.25 $5
</TABLE>
The closing bid and asking price on December 10, 1999 was $2.00 and $7.00
per share, respectively.
(b) Holders
There were approximately 69 beneficial owners of the Company's Common Stock
as of December 1, 1999, after broker inquiry.
(c) Dividends
The Company has paid no dividends on its Common Stock to date, nor does it
anticipate doing so in the foreseeable future. Any future determination to pay
dividends will be at the discretion of the Board of Directors and will be
dependent upon there being sufficient capital and surplus as required by the
Nevada Statutes, the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors deems
relevant. There can be no assurance that the Company will ever choose to
declare such a dividend or that if it did that such funds would be legally
available for payment of such dividends.
Item 2. Legal Proceedings.
The Company is not a party to any litigation, nor is it aware of any
threatened litigation or similar proceeding that would, if initiated and
resolved against the Company, have a material adverse effect on the Company, its
properties or its prospects.
Item 3. Changes in and Disagreements With Accountants.
None.
Item 4. Recent Sales of Unregistered Securities.
(1) The Company was incorporated in December of 1997. At that time, an
aggregate of 3,000,000 shares of Common Stock were issued to five founding
shareholders; Kandel (800,000), The Palmeto Group, Inc. (1,500,000), Delta
Financial Resources, Inc. (250,000), Barry Bendett (200,000) and Strateia
(250,000), at a price of $.01 per share in reliance upon the exemption for
offerings not involving a public offering pursuant to Section 4(2) of the
Securities Act of 1933. The Palmeto Group, Inc., an affiliate of Kandel,
later transferred 1,500,000 shares of Common Stock to Kandel. (See "Certain
Relationships and Related Transactions").
39
<PAGE>
(2) In December of 1997 and January of 1998, the Company offered and sold an
aggregate of 390,000 shares of Common Stock to approximately 43 investors
at an offering price of $.50 per share, for aggregate offering proceeds of
$195,000 in reliance upon the exemption from registration provided by Rule
504 of Regulation D.
. At the time of this offering, the Company was a development stage
company with a specific business plan and such plan included:
(i) Consolidation of sanitary and janitorial supplies industry;
(ii) Specific, identifiable acquisition targets such as Kandel &
Son, NISSCO and Air Reactor, Inc., a New York corporation among
others; and
(iii) Electronic commerce program.
. The total offering proceeds was $195,000, less than $1,000,000 limit
of Rule 504(b)(2).
. All of the investors received an offering memorandum disclosing
material information relating to the Company's businesses and risk
factors.
(3) In December of 1998, the Company sold an aggregate of 300,000 shares of
Common Stock to approximately 11 investors, at an offering price of $2.50
per share for aggregate proceeds of $750,000, in reliance upon Rule 504 of
Regulation D; but the Company also relies on the exemption from
registration provided by Rule 506 of Regulation D and Section 4(2) and 4(6)
of the Securities Act of 1933.
. All of the 11 investors were "accredited investors" as defined in
Rule 501.
. All of the investors received an offering memorandum disclosing
material information relating to the Company's businesses and risk
factors.
. All of the investors represented and warranted that:
(i) they understood that the securities being purchased are not
registered under the Securities Act of 1933;
(ii) the securities are being acquired solely for the investor's own
account, for investment purposes only, and are nor being
purchased with a view to or in connection with, any resale,
distribution, subdivision or fractionalization thereof;
40
<PAGE>
(iii) they had no agreement or other arrangement, formal or informal,
with any person to sell, transfer or pledge any of the
securities being purchased or which would guarantee to the
investor any profit, or to protect the investor against any
loss with respect to the securities, and the investor has no
plans to enter into any such agreement or arrangement;
(iv) they understood that they should bear the economic risk of the
investment for an indefinite period of time due to the lack of
trading market for the securities and the securities cannot be
resold or otherwise transferred unless applicable state
securities laws are complied with or exemption therefrom are
available;
(v) they understood that the securities cannot be sold or assigned
without registration and/or qualification under any applicable
state securities laws or exemptions from such laws;
(vi) they understood that the Company has no obligation to register
the securities under the Securities Act of 1933 or to register
or qualify the securities under any state securities laws, or
to take any action, through the establishment of exemption(s)
or otherwise, to permit the transfer thereof.
(4) In December of 1998, the Company sold 70,000 shares of Series E Stock to
Steven C. Etra, a Director for the Company, in a negotiated private
transaction, for proceeds to the Company of $175,000, in an isolated
private transaction in reliance upon the exemption from registration
provided by Rule 506 of Regulation D.
(5) In January of 1999, the Company sold 70,000 shares of Common Stock to a
single accredited investor at a price of $2.50 per share for aggregate
proceeds to the Company of $175,000. The transaction was effected in
reliance upon the exemption from registration provided by Rule 506 of
Regulation D.
(6) In January of 1999, the Company issued 500,000 shares of its Series A Stock
to Kandel, Chairman and CEO of the Company, in connection with the
acquisition of Kandel & Son. The issuance was made in reliance upon an
exemption from registration under Section 4(2) of the Securities Act.
(7) In January of 1999, the Company undertook to issue to Thomas B. Haines, a
former Director of the Company, an aggregate of 1,000,000 shares of Common
Stock, subject to adjustment, as partial consideration for the acquisition
of NISSCO. In connection with the sale, the Company issued 250,000 shares
of Common Stock to Mr. Haines at the closing of the acquisition, and
250,000 shares are to be issued to Mr. Haines on January 1, 2000. In
addition, pursuant to the acquisition agreement, an undetermined number of
shares, but in no case less than 500,000 shares of Common Stock, are to be
issued by the Company on
41
<PAGE>
January 15, 2001. (See "Certain Relationships and Related Transactions.")
These issuances are made in reliance on the exemption from registration
under Section 4(2) of the Securities Act.
(8) In March of 1999, the Company sold an aggregate of 100,000 shares of Common
Stock to an accredited investor at a price of $2.50 per share for aggregate
proceeds of $250,000 in a transaction in reliance upon the exemption from
registration provided by Rule 506 of Regulation D.
(9) In April of 1999, the Company sold an aggregate of 50,000 shares of Common
Stock to Colnic Investment Corporation ("Colnic"), a private investment
company controlled by Davis, President of the Company, at a price of $2.50
per share for aggregate proceeds of $125,000 in a transaction in reliance
upon the exemption from registration provided by Rule 506 of Regulation D.
(10) In April of 1999, Steven C. Etra, the Director and Secretary of the
Company, was granted options for 125,000 shares of the Common Stock and SRK
Associates, LLC was granted options for 25,000 shares of the Common Stock,
both at an exercise price of $3.50. Robert Moehler, the former president of
the Company, was granted options for 25,000 shares of the Common Stock at
an exercise price of $4.25. All of these grants were made in consideration
for past and on-going consulting services rendered to the Company. These
are the only stock options thus far granted by the Company. These
transactions were done in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
(11) In May of 1999, the Company sold an aggregate of 100,000 shares of Common
Stock to an accredited investor at a price of $2.50 per share for aggregate
proceeds of $250,000 in a transaction in reliance upon the exemption from
registration provided by Rule 506 of Regulation D.
(12) In June of 1999, the Company sold an aggregate of 300 units, each unit
consisting of a 12.75% Subordinated Promissory Note due April 1, 2002 in
the principal amount of $10,000 and 2,400 common stock purchase warrants.
These units were sold to a total of 59 accredited investors and two
sophisticated investors. The units were sold for $10,000 per unit for
aggregate offering proceeds of $3,000,000 in reliance upon the exemption
from registration provided by Rule 506 of Regulation D.
(13) In June of 1999, the Company sold an additional 50,000 shares of Common
Stock to Colnic at a price of $2.50 per share for aggregate proceeds of
$125,000 in a transaction in reliance upon the exemption from registration
provided by Rule 506 of Regulation D.
(14) In July of 1999, the Company sold an additional 10,000 shares of Common
Stock to SRK Associates, LLC, a company controlled by Steven C. Etra, a
Director of the Company, at a price of $2.50 per share for aggregate
proceeds of $25,000 in a transaction in reliance upon the exemption from
registration provided by Rule 506 of Regulation D.
42
<PAGE>
(15) In July of 1999, the Company sold an additional 6,000 shares of Common
Stock to Blair Etra, wife of Steven C. Etra, a Director of the Company, at
a price of $2.50 per share for aggregate proceeds of $15,000 in a
transaction in reliance upon the exemption from registration provided by
Rule 506 of Regulation D.
(16) In July of 1999, the Company issued 25,000 shares of Common Stock to
Harrington, Ocko & Monk, LLP, the former outside counsel to the Company, at
a price of $5.00 per share in consideration for legal services rendered, in
a transaction in reliance upon the exemption from registration under
Section 4(2) of the Securities Act.
(17) In August of 1999, the Company, in connection with the purchase of CIC,
issued, as partial consideration for CIC, 320,000 shares of Series D Stock
to Davis, President of the Company, and Charles H. Davis, his father, in a
transaction in reliance upon the exemption from registration under Section
4(2) of the Securities Act.
(18) In August of 1999, in connection with the purchase of Superior, the Company
issued 50,000 shares of Common Stock to Stephen Haynes, President of
Superior, as partial consideration for Superior in a transaction in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act.
(19) On December 15, 1999, the Company sold an aggregate of 251.4 units, each
unit consisting of a 100 Shares of Series B Cumulative Convertible
Preferred Stock and 1000 common stock purchase warrants. These units were
sold to a total of 59 accredited investors at $10,000 per unit for
aggregate offering proceeds of $2,514,000 in reliance upon the exemption
from registration provided by Rule 506 of Regulation D. On December 30,
1999, the Company sold an additional 2.5 units to Barry Gordon, a Director
of the Company, for $25,000 as part of the same offering.
All sales of securities in transactions Nos. 4, 5, 8, 9, 11, 12, 13, 14, 15
and 19 listed above were made pursuant to subscription agreements and investor
questionnaire containing representations and warranties, and eliciting
information intended to enable the Company to establish the facts and
circumstances entitling the Company to rely upon the exemptions from the
registration requirements of the Securities Act under Rule 506 of Regulation D.
All of the investors in those transactions have represented and warranted that:
. there was reasonable opportunity to ask questions and receive answers
from the Company concerning the offering;
. all questions were answered to full satisfaction;
. the Investor is capable of evaluating the merit and risks of the
investment;
43
<PAGE>
. the investor is relying only on independently gathered information to
invest;
. the securities are being acquired for investment purposes only;
. the investor is an "accredited investor" as defined in Regulation D
(except for one sophisticated investor in the June 199 unit offering);
. the securities are not registered under the Securities Act;
. the securities are "restricted securities" as defined in Rule 144;
. the securities cannot be sold or otherwise transferred unless they have
first been registered under the Securities Act and all applicable state
securities laws are complied with, or the securities qualify for
exemption from such registration; and
. the certificates representing the securities purchased bear restrictive
legends.
In addition, none of such Rule 506 offerings involved general solicitation
or advertising and all of the certificates issued bore restrictive legend as
described in the subscription agreements.
Item 5. Indemnification of Directors and Officers.
Under the Nevada Revised Statutes (the "Statutes"), the Company shall have
the power to eliminate the personal liability of the directors and officers of
the Company for monetary damages to the fullest extent possible under the
Statutes or other applicable law. These provisions eliminate the liability of
directors or officers to the Company and its shareholders for monetary damages
arising out of any violation of a director of his fiduciary duty of due care.
Under the Statutes, the Company may, by a majority of its disinterested
directors, shareholders, or in some cases by independent legal counsel,
indemnify any officer or director against expenses actually and reasonably
incurred, if such person acted in good faith in a manner reasonably believed to
be in the best interests of the Company, and in the case of any criminal action
or proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. The Company may indemnify any officer or director against expenses
and amounts actually paid or incurred in settlement not exceeding, in the
judgement of the Board of Directors, estimated expenses of litigation.
Indemnification and/or advancement of expenses provided by the Statutes
44
<PAGE>
are not exclusive and the Company may make any further advancement or payment of
expenses. However, no indemnification and/or advancement will be made to any
officer or director if such person shall have been adjudged to be liable,
unless, upon application and determination of the court that in view of the
circumstances in the case, such person is fairly and reasonably entitled to
indemnification.
45
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
================================================================================
FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements as of and for the year
ended December 31, 1998, and accompanying notes which are an integral part
thereof, and the independent auditor's report of Goldstein Golub Kessler LLP,
independent certified public accountants, with respect thereto, appear on pages
F-16 to F-26 of this Amendment No. 2 to Form 10-SB. The Company's Unaudited
Consolidated Financial Statements as of June 30, 1999 and for the six months
ended June 30, 1999 and 1998, and accompanying notes which are an integral part
thereof, appear on pages F-8 to F-15 of this Amendment No. 2 to Form 10-SB. The
Company's financial statements as of and for the year ended August 31, 1997, and
accompanying notes which are an integral part thereof, and the independent
auditor's report of Kirschner & Pasternack, LLP, independent certified public
accountants, with respect thereto, appear on pages F-27 to F-32 of this
Amendment No. 2 to Form 10-SB. Nissco/Sunline, Inc. and its subsidiaries'
financial statements as of December 31, 1998 and 1997, and for the years then-
ended, and accompanying notes which are an integral part thereof, and the
independent auditor's report of Kirschner & Pasternack, LLP, independent
certified public accountants, with respect thereto, appear on pages F-33 to F-50
of this Amendment No. 2 to Form 10-SB. These financial statements are
incorporated by reference herein by reference thereto.
F-1
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
Pro Forma:
<S> <C>
Unaudited Pro Forma Consolidated Financial Statements F-4
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1998 F-5
Notes to Unaudited Pro Forma Consolidated Statement of Operations F-6 - F-7
Historical:
Enviro-Clean of America, Inc. & Subsidiaries:
Unaudited Consolidated Balance Sheet as of June 30, 1999 F-8
Unaudited Consolidated Statement of Operations for the
Six-Month Period Ended June 30, 1998 and 1999 F-9
Unaudited Consolidated Statement of Cash Flows for the
Six-Month Period Ended June 30, 1998 and 1999 F-10
Notes to Consolidated Financial Statements F-11 - F-15
Independent Auditor's Report F-16
Consolidated Balance Sheet as of December 31, 1998 F-17
Consolidated Statement of Operations for the Year Ended
December 31, 1998 F-18
Consolidated Statement of Stockholders' Equity for the Year
Ended December 31, 1998 F-19
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1998 F-20
Notes to Consolidated Financial Statements F-21 - F-26
Independent Auditor's Report F-27
Balance Sheet as of August 31, 1997 F-28
Statement of Earnings and Retained Earnings for the Year
Ended August 31, 1997 F-29
Statement of Cash Flows for the Year Ended August 31, 1997 F-30
Notes to Consolidated Financial Statements F-31 - F-32
</TABLE>
F-2
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
NISSCO, Inc. & Subsidiaries:
<S> <C>
Independent Auditor's Report F-33
Balance Sheet as of December 31, 1998 F-34
Statement of Income for the Year Ended December 31, 1998 F-35
Statement of Changes In Retained Earnings for the Year Ended
December 31, 1998 F-36
Statement of Cash Flows for the Year Ended December 31, 1998 F-37
Notes to Consolidated Financial Statements F-38 - F-39
Independent Auditor's Report F-40
Balance Sheet as of December 31, 1997 F-41
Statement of Income for the Year Ended December 31, 1997 F-42
Statement of Changes In Retained Earnings for the Year Ended
December 31, 1997 F-43
Statement of Cash Flows for the Year Ended December 31, 1997 F-44
Notes to Consolidated Financial Statements F-45 - F-46
</TABLE>
F-3
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In January 1999, Enviro-Clean of America, Inc. ("the Company") merged with
Kandel & Son, Inc. ("Kandel") a wholesale distributor of sanitary maintenance
supplies and paper products. This merger has been accounted for in a manner
similar to a pooling of interests because Richard Kandel, the sole stockholder
of Kandel, is the majority stockholder of the Company. The historical financial
statements of Kandel have been retroactively restated as if the Companies had
always been combined. The December 31, 1998 historical consolidated financial
statements of the Company combine the balance sheet as of December 31, 1998 and
statements of operations, and cash flows of Enviro-Clean of America, Inc. for
the year ended December 31, 1998 and the balance sheet of Kandel and Son, Inc.
as of September 30, 1998 and the statements of operations, and cash flows for
the year ended September 30, 1998, pursuant to regulation SX rule 3 A-02, b.
The results of operations of Kandel for the period from October 1, 1998 through
December 31, 1998 has not been included in the December 31, 1998 results of
operations of the Company.
Additionally, in January 1999 the Company acquired all of the outstanding common
stock of NISSCO/Sunline, Inc. ("NISSCO"), a Florida-based company engaged in
group marketing of sanitary/janitorial supplies, in exchange for $500,000 cash
and 1,000,000 shares of the Company's common stock.
The accompanying unaudited pro forma consolidated statement of operations for
the year ended December 31, 1998 presents the results of operations of the
Company as if the NISSCO acquisition had occurred on January 1, 1998.
The adjustments to the historical financial statements and certain assumptions
are described in Note 3. This statement does not purport to be indicative of
the consolidated results of operations of the Company that might have occurred
had the acquisition actually taken place as described above nor are they
indicative of future results. Furthermore, this pro forma consolidated
financial statement does not reflect changes which may occur as a result of
post-acquisition activities and other matters.
The unaudited pro forma consolidated statement of operations should be read in
conjunction with (i) the unaudited historical consolidated financial statements
of Enviro-Clean of America, Inc. and Subsidiaries as of June 30, 1999 and for
the six-month period ended June 30, 1999, (ii) the historical financial
statements of Enviro-Clean of America, Inc. as of December 31, 1998 and for the
year then ended, and (iii) the historical financial statements of NISSCO for the
years ended December 31, 1998 and 1997.
F-4
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Historical Historical
Enviro-Clean NISSCO Pro Forma
December 31, 1998 December 31, 1998 Adjustments Pro Forma
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $1,793,817 $1,789,202 - $3,583,019
Cost of goods 973,497 231,611 - 1,205,108
- ------------------------------------------------------------------------------------------------------
Gross profit 820,320 1,557,591 - 2,377,911
- ------------------------------------------------------------------------------------------------------
Operating expenses:
Salaries 242,298 547,763 5,000 (b) 935,061
- - 70,000 (c) -
Professional fees 121,372 29,496 - 150,868
Depreciation 36,605 4,462 - 41,067
Amortization - - 297,700 (a) 297,700
Marketing 123,998 111,085 - 235,083
Rent 39,076 28,488 - 67,564
Interest 63,925 7,953 - 71,878
Other 335,251 378,356 - 713,607
- ------------------------------------------------------------------------------------------------------
Total operating expenses 962,525 1,107,603 442,700 2,512,828
- ------------------------------------------------------------------------------------------------------
Income (loss) before provision for
income taxes (142,205) 449,988 (442,700) (134,917)
Provision for income taxes 4,577 102,000 - 106,577
- ------------------------------------------------------------------------------------------------------
Net income (loss) $ (146,782) $ 347,988 $(442,700) $ (241,494)
======================================================================================================
</TABLE>
F-5
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================
The following notes set forth the explanations and assumptions used in preparing
the unaudited pro forma consolidated statement of operations for the year ended
December 31, 1998.
The adjustments to the historical financial statements and certain assumptions
are described in Note 3. This statement does not purport to be indicative of
the consolidated results of operations of the Company that might have occurred
had the acquisition actually taken place as described above nor are they
indicative of future results. Furthermore, this pro forma consolidated
financial statement does not reflect changes which may occur as a result of
post-acquisition activities and other matters.
The unaudited pro forma consolidated statement of operations should be read in
conjunction with (i) the unaudited historical consolidated financial statements
of Enviro-Clean of America, Inc. and Subsidiaries as of June 30, 1999 and for
the six-month period ended June 30, 1999, (ii) the historical financial
statements of Enviro-Clean of America, Inc. as of December 31, 1998 and for the
year then ended, and (iii) the historical financial statements of NISSCO for the
years ended December 31, 1998 and 1997.
<TABLE>
<S> <C>
1. BACKGROUND: In January 1999, Enviro-Clean of America, Inc. ("the Company") merged with Kandel &
Son, Inc. ("Kandel") a wholesale distributor of sanitary maintenance supplies and
paper products. This merger has been accounted for in a manner similar to a pooling
of interests, because Richard Kandel, the sole stockholder of Kandel, is the majority
stockholder of the Company. The historical financial statements of Kandel have been
retroactively restated as if the Company and Kandel had always been combined. The
December 31, 1998 historical consolidated financial statements of the Company combine
the balance sheet as of December 31, 1998 and the statements of operations, and cash
flows of Enviro-Clean of America, Inc. for the year ended December 31, 1998 and the
balance sheet of Kandel and Son, Inc. as of September 30, 1998 and the statements of
operations, and cash flows for the year ended September 30, 1998, pursuant to
regulation SX rule 3 A-02, b. The results of operations of Kandel for the period from
October 1, 1998 through December 31, 1998 have not been included in the December 31,
1998 results of operations of the Company.
Additionally, in January 1999 the Company acquired all of the outstanding common
stock of NISSCO/Sunline, Inc. ("NISSCO"), a Florida-based company engaged in group
marketing of sanitary/janitorial supplies, in exchange for $500,000 cash and
1,000,000 shares of the Company's common stock. This acquisition has been accounted
for as a purchase.
2. PRESENTATION: The accompanying unaudited pro forma consolidated statement of operations for the
year ended December 31, 1998 presents the results of operations of the Company as if
the NISSCO acquisition had occurred on January 1, 1998.
</TABLE>
F-6
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<S> <C>
3. ADJUSTMENTS The unaudited pro forma consolidated statement of operations reflect the following
AND pro forma adjustments:
ASSUMPTIONS
(a) Adjustment to reflect the amortization of goodwill of approximately $2,977,000,
resulting from the acquisition of NISSCO, over 10 years.
(b) Adjustment to reflect employment agreement for T. Haines upon the acquisition of
NISSCO.
(c) Adjustment to reflect the difference between R. Kandel's salary per his employment
agreement with the Company and the actual amount of his salary paid by Kandel prior
to its combination with the Company on January 1, 1999. ($100,000 employment
agreement, $30,000 Kandel salary).
</TABLE>
F-7
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
================================================================================
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(unaudited)
<S> <C>
June 30, 1999
- -------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,220,995
Accounts receivable 670,428
Merchandise inventory 125,500
Prepaid expenses and other 85,569
- -------------------------------------------------------------------------------------------------------
Total current assets 4,102,492
- -------------------------------------------------------------------------------------------------------
Property, Plant and Equipment - at cost 488,468
Less accumulated depreciation 305,490
- -------------------------------------------------------------------------------------------------------
182,978
- -------------------------------------------------------------------------------------------------------
Other Assets:
Goodwill 2,828,352
Other 5,775
- -------------------------------------------------------------------------------------------------------
2,834,127
- -------------------------------------------------------------------------------------------------------
Total Assets $ 7,119,597
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 713,919
Loans payable 7,329
- -------------------------------------------------------------------------------------------------------
Total current liabilities 721,248
- -------------------------------------------------------------------------------------------------------
Long-term Liabilities:
Notes payable - subordinated 2,341,289
- -------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock Series A:
$.001 par value; stated value $5.00; authorized, issued and outstanding 500,000 shares 2,500,000
- -------------------------------------------------------------------------------------------------------
Minority interest 5,000
Stockholders' Equity:
Preferred stock Series E-$.001 par value; stated value $2.50; authorized, issued
and outstanding 70,000 shares 175,000
Common stock - $.001 par value; authorized 20,000,000 shares, issued and outstanding
4,310,000 shares 4,310
Additional paid-in capital 3,107,377
Retained earnings (deficit) (3,604,627)
Stock subscriptions receivable-b2bstores.com (5,000)
Common stock to be issued 1,875,000
- -------------------------------------------------------------------------------------------------------
Stockholders' equity 1,552,060
- -------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 7,119,597
=======================================================================================================
</TABLE>
F-8
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
================================================================================
Six-month period ended June 30, 1999 1998
- -------------------------------------------------------------------------------
Net sales $1,822,375 $ 919,451
Cost of sales 856,609 495,662
- -------------------------------------------------------------------------------
Gross profit 965,766 423,789
- -------------------------------------------------------------------------------
Operating expenses:
Salaries 291,866 77,507
Professional fees 135,878 24,775
Depreciation 22,557 17,492
Amortization of goodwill 148,860 -
Marketing 14,684 4,816
Rent 34,356 19,409
Other 329,044 271,861
- -------------------------------------------------------------------------------
Total operating expenses 977,245 415,860
- -------------------------------------------------------------------------------
Operating income (loss) (11,479) 7,929
Interest expense (66,782) -
Other income (expenses) 7,609 (1,000)
- -------------------------------------------------------------------------------
Income (loss) before provision for income taxes (70,652) 6,929
Provision for income taxes 5,400 -
- -------------------------------------------------------------------------------
Net income (loss) (76,052) 6,929
Preferred stock dividends (52,625) -
- -------------------------------------------------------------------------------
Net income (loss) attributable to common stockholders $ (128,677) $ 6,929
===============================================================================
Net loss per share - basic $ (.03) $ - 0 -
===============================================================================
Weighted average number of shares outstanding 3,882,147 3,400,000
===============================================================================
F-9
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
================================================================================
<TABLE>
<S> <C> <C>
Six-month period ended June 30, 1999 1998
- ----------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (76,052) $ 6,929
- ----------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 22,556 17,492
Amortization 148,861 -
Amortization of note discount 19,961 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 36,961 (44,837)
Increase in prepaid expenses (24,831) (29,254)
(Increase) decrease in inventories 24,613 (10,000)
Increase in other assets - (20,000)
Increase in accounts payable 176,550 42,818
Increase in income taxes payable 3,102 -
- ----------------------------------------------------------------------------------------------
Total adjustments 407,773 (43,781)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 331,721 (36,852)
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets - (5,646)
Cash paid for acquisitions (652,451) -
Cash acquired from subsidiaries 68,046 -
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (584,405) (5,646)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Loans receivable 21,320 -
Net cash received (paid) on notes payable 1,671,441 (37,906)
Common stock issued 925,000 67,015
Warrants issued 678,672
- ----------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,296,433 29,109
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,043,749 (13,389)
Cash and cash equivalents at beginning of period 177,246 39,919
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $3,220,995 $ 26,530
==============================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,259 $ 22,015
==============================================================================================
Taxes $ 2,298 $ - 0 -
==============================================================================================
</TABLE>
F-10
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The consolidated financial statements included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The accompanying consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. Such adjustments
are of a normal recurring nature. The unaudited interim financial statements
should be read in conjunction with the Company's year-end audited financial
statements included elsewhere herein.
<TABLE>
<S> <C>
1. PRINCIPAL The accompanying consolidated financial statements include the accounts of
BUSINESS Enviro-Clean of America, Inc. and its Subsidiaries (collectively the "Company").
ACTIVITY AND All significant intercompany balances and transactions have been eliminated in
SUMMARY OF consolidation.
SIGNIFICANT
ACCOUNTING The principal business activity of the Company is the wholesale distribution of
POLICIES: sanitary maintenance supplies and paper products.
The Company also provides buying services and group discounts to wholesale
distributors of sanitary maintenance supplies, paper goods and related products.
The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.
Property and equipment are recorded at cost. Depreciation is provided for by the
straight-line method over the estimated useful lives of the property and equipment.
Inventories consisting of finished goods are valued at the lower of cost or market.
Cost is determined using the first-in, first-out method.
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates by management. Actual results
could differ from these estimates.
At each balance sheet date, the Company evaluates the period of amortization of
intangible assets. The factors used in evaluating the period of amortization
include: (i) current operating results, (ii) projected future operating results, and
(iii) any other material factors that effect the continuity of the business.
Preferred stock dividends in arrears which represent dividends owed, but undeclared
at June 30, 1999, totals $52,625. All dividends in arrears were paid by July 1, 1999.
</TABLE>
F-11
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Earnings per share ("EPS") is computed by dividing net income or loss by the
weighted-average number of common shares outstanding for the year. Diluted EPS is
not presented because the Company had no dilutive securities outstanding at December
31, 1998. At June 30, 1999 there were 750,000 shares of common stock to be issued in
connection with the NISSCO acquisition (see Note 2) and various warrants and options
to acquire shares of common stock outstanding. These amounts have not been taken
into account in the computation of earnings per share because the effect would be
anti-dilutive.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
accompanying financial statements.
2. ACQUISITIONS: On January 15, 1999 the Company completed an agreement whereby, effective January 1,
1999, the Company purchased all of the stock of NISSCO/Sunline, Inc. ("NISSCO"), a
Florida-based company engaged in group marketing of sanitary/janitorial supplies.
The aggregate purchase price for this acquisition is $3,000,000, consisting of
$500,000 in cash and 1,000,000 shares of the Company's common stock valued at $2.50
per share. The stock value has been determined based on the selling price of common
stock to unrelated third parties. The common stock will be issued to the seller in
installments, as defined in the agreement. This acquisition is accounted for as a
purchase.
</TABLE>
<TABLE>
Assets and liabilities acquired, at historical cost, include:
<S> <C>
Cash $ 17,259
Accounts receivable 507,331
Property and equipment 57,487
Other assets 2,001
----------------------------------------------------------------------
Total assets $584,078
======================================================================
Accounts payable and accrued expenses $321,670
Due to stockholder 141,621
Taxes payable 98,000
----------------------------------------------------------------------
$561,291
======================================================================
</TABLE>
The fair value of net assets acquired amounted to
approximately $23,000, which resulted in an
excess of cost over the fair value of the net
assets acquired (goodwill) of approximately
$2,977,000 which is being amortized over 10
years.
The operations of NISSCO are included in the
consolidated financial statements from January 1,
1999, the date of acquisition.
F-12
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The seller received 250,000 shares on January 15, 1999 and will
receive 250,000 shares on January 15, 2000, and 500,000 shares
on January 15, 2001. All shares have been valued at $2.50, the
fair market value of the Company's common stock on January 1,
1999. If on January 15, 2001 the Company's Average Bid Price
Per Share for the ten days preceding January 15, 2001 is not at
least $5.00, the Company shall issue additional shares of
common stock to the seller such that the aggregate value of all
shares issued shall be $2,500,000. The value of any
contingently issuable shares has not been accounted for in the
valuation of the NISSCO acquisition.
On June 29, 1999 the Company agreed to invest $6,000 to
acquired 1,860,000 shares common stock of b2bstores.com
("b2b"), a development stage company, that plans on maintaining
a internet web site and providing products for sale "on-line."
The investment represents 54.5% of the outstanding common stock
of b2b. The results of operations of b2b have been included in
the consolidated financial statements from the date of
acquisition. Through June 30, 1999 the b2b had incurred no
expenses and had recorded no revenue. The Company also paid
$25,000, for a legal retainer, on behalf of b2b, which is
included in the consolidated balance sheet in prepaid expenses
and other. The minority interest represents the minority
stockholders' investment in b2b. As of June 30, 1999 officers
and directors of the Company personally own approximately 40%
of the outstanding common stock of b2b.
---------------------------------------------------------------
3. PROPERTY AND Property and equipment, at cost, consists of:
EQUIPMENT
Depreciation
Period
---------------------------------------------------------------
Furniture and fixtures $319,884 5 years
Transportation equipment 168,584 5 years
---------------------------------------------------------------
488,468
Less accumulated depreciation 305,490
---------------------------------------------------------------
$182,978
===============================================================
F-13
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
4. NOTES PAYABLE: On June 1, 1999, the Company received $3,000,000 in exchange for 300 units. Each
unit is comprised of a $10,000 face value note. The notes are due April 1, 2002 and
pay interest in arrears quarterly on the face amount, at a rate of 12.75% per annum.
Issued along with each unit were warrants to purchase 2,400 shares of common stock
(720,000 shares in aggregate) of the Company. The warrants are exercisable at any
time after November 27, 1999 through June 1, 2003 at an exercise price of $4.25 per
share. Based upon the fair value of the warrants on the date of issue, the Company
has discounted the carrying value of the notes by $678,672, which represents the
fair value of the warrants on the date of issue. The discount is being amortized as
additional interest over the term of the notes.
One of the units was sold to the wife of a director of the Company.
5. COMMITMENTS: The Company leases certain office and warehouse facilities under operating leases
expiring in 2000.
Minimum annual rental commitments under the leases are summarized as follows:
</TABLE>
Year ending June 30,
<TABLE>
<S> <C>
1999 $23,931
2000 46,499
---------------------------------------------------------------------------------
</TABLE>
Rent expense charged to earnings was $34,356 and $19,409 for the six-
month periods ended June 30, 1999 and June 30, 1998, respectively.
<TABLE>
<S> <C>
6. STOCKHOLDERS' EQUITY: In January 1999, the Company issued 70,000 shares of common stock for an aggregate
price of $175,000.
In March 1999, the Company issued 100,000 shares of common stock for an aggregate
price of $250,000.
In April 1999, the Company issued 50,000 shares of common stock for an aggregate
price of $125,000. These shares were sold to the entity controlled by the Company's
President.
In May 1999, the Company issued 100,000 shares of common stock for an aggregate
price of $250,000.
In June 1999, the Company issued 50,000 shares of common stock for an aggregate
price of $125,000. These shares were sold to the entity controlled by the Company's
President.
</TABLE>
F-14
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
7. SEGMENT INFORMATION: Prior to the Company's acquisition of NISSCO in January 1999, the Company operated
in one industry segment. Subsequent to the NISSCO acquisition, the Company operated
in two segments, the wholesale distribution of sanitary maintenance products and
providing buying services and group discounts to wholesalers.
Summarized financial information by business segment is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Products-Kandel $ 879,115
Services-Nissco 943,260
----------------------------------------------------------------------------------
$1,822,375
==================================================================================
Profit:
Products-Kandel $ 52,430
Services-Nissco 256,007
----------------------------------------------------------------------------------
$ 308,437
==================================================================================
Total Assets:
Products-Kandel $ 545,679
Services-Nissco 605,604
---------------------------------------------------------------------------------
$1,151,283
=================================================================================
</TABLE>
The difference between the Company's segment
profit and consolidated reported loss is related
to unallocated corporate overhead expenses and
the amortization of goodwill. The difference
between assets by segment and consolidated
assets is related to corporate overhead assets.
Reconciliation of profits to consolidated income before taxes
Profit from product sales-Kandel 52,430
Profit from services- Nissco 256,007
------------
Total profit by segment 308,437
Amortization of goodwill 148,860
Interest expense 66,782
Professional fees 135,878
Corporate overhead-salaries 27,569
------------
(70,652)
============
F-15
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
8. SUBSEQUENT EVENTS: In July 1999, the Company issued 16,000 shares of common stock for an aggregate
purchase price of $40,000.
In July 1999, the Company issued 25,000 shares of common stock to the Company's
former legal counsel.
On August 1, 1999, the Company acquired Cleaning Ideas, Inc. and Subsidiary
(collectively "Cleaning Ideas"). The acquisition was accomplished by a merger into
a subsidiary of Enviro-Clean established for the acquisition. Terms of the
acquisition to the Company shareholders were:
1. $500,000 in cash,
2. 320,000 shares of Enviro-Clean Series D preferred stock, and
3. Secured promissory note of $900,000 payable in quarterly installments of
$112,500 plus interest at 8.75% per annum.
Effective on August 17, 1999, Superior Chemical & Supply, Inc. was purchased by
Enviro-Clean in consideration for $400,000 in cash, $1,200,000 in a note payable
over three years, and 50,000 shares of common stock of Enviro-Clean which were
placed in escrow.
In October of 1999, the Company authorized the issuance of up to 80,000 shares of
Series B Cumulative Convertible Preferred Stock (the "Series B Stock"). The series
B Stock has a stated value of $100, bears a dividend at a rate of 10% per annum and
has a maturity of five years from the date of issuance. The Series B Stock is
convertible into common stock at a conversion price of $5.
The Company sold an aggregate of 251.4 units, each unit consisting of 100 shares of
Series B Stock and 1000 common stock purchase warrants, to approximately 59
accredited investors for aggregate proceeds tot he Company of $2,514,000. The
Company expects to continue this private placement until December 31, 1999, or until
up to 800 such units are sold.
On December 15, 1999, Steven C. Etra, Director and Secretary of the Company,
purchased six units, each unit consisting of 100 Shares of Series B Cumulative
Convertible Preferred Stock and 1000 Common Stock Purchase Warrants at an exercise
price of $5.00 per share, in a private placement under Rule 506 of Regulation D.
On December 15, 1999, Blair Etra, the wife of Steven C. Etra, Director and Secretary
of the Company, purchased thirteen units, each unit consisting of 100 Shares of
Series B Cumulative Convertible Preferred Stock and 1000 Common Stock Purchase
Warrants at an exercise price of $5.00 per share, in a private placement under Rule
506 of Regulation D.
On December 15, 1999, Lances Property Development Pension Plan, a company owned 50%
by Steven C. Etra, Director and Secretary of the Company,
</TABLE>
F-16
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
purchased four units, each unit consisting of 100 Shares of Series B Cumulative
Convertible Preferred Stock and 1000 Common Stock Purchase Warrants at an exercise
price of $5.00 per share, in a private placement under Rule 506 of Regulation D.
On December 15, 1999, Irving Etra Family Trust, of which Steven C. Etra, Director
and Secretary of the Company, is a beneficiary, purchased five units, each unit
consisting of 100 Shares of Series B Cumulative Convertible Preferred Stock and 1000
Common Stock Purchase Warrants at an exercise price of $5.00 per share, in a private
placement under Rule 506 of Regulation D.
On December 15, 1999, Gary Granoff, Director of the Company, purchased five units,
each unit consisting of 100 Shares of Series B Cumulative Convertible Preferred
Stock and 1000 Common Stock Purchase Warrants at an exercise price of $5.00 per
share, in a private placement under Rule 506 of Regulation D.
Through January 17, 2000 the Company had agreed to fund b2b for amounts up to
$1,500,000.
</TABLE>
F-17
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
================================================================================
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Enviro-Clean of America, Inc.
We have audited the accompanying balance sheet of Enviro-Clean of America, Inc.
and Subsidiaries as of December 31, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the year 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 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 Enviro-Clean of America, Inc.
and Subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
December 1, 1999
F-18
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
December 31, 1998
- --------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets:
Cash $ 120,610
Accounts receivable, net of allowance for doubtful accounts of $49,006 179,088
Inventory 118,898
Notes receivable 28,320
Acquisition deposits 500,000
Prepaid expenses and other current assets 65,337
- --------------------------------------------------------------------------------------------
Total current assets1,012,253
Property and Equipment - at cost, net of accumulated depreciation of $120,702 128,823
Deferred Income Tax Asset, net of valuation allowance of $20,000 -
- --------------------------------------------------------------------------------------------
Total Assets $1,141,076
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 227,746
Notes payable 97,140
Subscriptions received in advance for preferred stock 175,000
Income taxes payable 4,977
Line of credit 98,918
- --------------------------------------------------------------------------------------------
Total current liabilities 603,781
- --------------------------------------------------------------------------------------------
Notes Payable 388,631
- --------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $.001 par value; authorized 20,000,000 shares,
issued and outstanding 3,690,000 shares 3,690
Additional paid-in capital 879,325
Accumulated deficit (734,351)
- --------------------------------------------------------------------------------------------
Stockholders' equity 148,664
- --------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,141,076
============================================================================================
</TABLE>
F-19
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<S> <C>
Year ended December 31, 1998
- --------------------------------------------------------------------------------
Sales $1,793,817
Cost of sales 973,497
- --------------------------------------------------------------------------------
Gross profit 820,320
- --------------------------------------------------------------------------------
Operating expenses:
Salaries 242,298
Professional fees 121,372
Depreciation 36,605
Marketing 123,998
Rent 39,076
Interest 63,925
Other 335,251
- --------------------------------------------------------------------------------
Total operating expenses 962,525
- --------------------------------------------------------------------------------
Loss before income tax expense (142,205)
Income tax expense 4,577
- --------------------------------------------------------------------------------
Net loss $ (146,782)
================================================================================
Basic loss per common share $ (.05)
================================================================================
Weighted-average number of common shares outstanding 3,196,546
================================================================================
</TABLE>
F-20
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period from December 9, 1997 (date of inception) to December
31, 1998:
Issuance of common stock for cash at $.01 per share 3,000,000 $3,000 - - $ 3,000
Issuance of common stock for cash at $.50 per share 179,000 179 $ 89,321 - 89,500
Issuance of common stock for cash at $.50 per share 211,000 211 105,289 - 105,500
Issuance of common stock for cash at $2.50 per share 300,000 300 684,715 - 685,015
Kandel & Son, Inc. retained earnings August 31, 1997 - - - $ 60,505 60,505
Net income of Kandel for the month ended September 30, 1997 - - - 4,921 4,921
Distributions to stockholder from Kandel during September 1997 - - - (97,496) (97,496)
Distribution to stockholder - - - (555,499) (555,499)
Net loss - - - (146,782) (146,782)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,690,000 $3,690 $879,325 $(734,351) $ 148,664
====================================================================================================================================
</TABLE>
F-21
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year ended December 31, 1998
- ----------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net loss $(146,782)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 36,605
Increase in allowance for doubtful accounts 34,984
Changes in operating assets and liabilities:
Increase in accounts receivable (9,429)
Decrease in inventory 14,302
Increase in prepaid expenses and other current assets (44,277)
Decrease in other assets 5,775
Increase in accounts payable and accrued expenses 123,575
Increase in income taxes payable 4,977
- ----------------------------------------------------------------------------------
Net cash provided by operating activities 19,730
- ----------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition deposits (800,000)
Purchase of property and equipment (20,708)
Increase in notes receivable (28,320)
- ----------------------------------------------------------------------------------
Cash used in investing activities (849,028)
- ----------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 883,015
Proceeds from subscriptions received in advance for preferred stock 175,000
Repayment of long-term debt (111,338)
- ----------------------------------------------------------------------------------
Net cash provided by financing activities 946,677
- ----------------------------------------------------------------------------------
Net increase in cash 117,379
Cash at beginning of year 3,231
- ----------------------------------------------------------------------------------
Cash at end of year $ 120,610
==================================================================================
</TABLE>
F-22
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
1. PRINCIPAL BUSINESS The accompanying consolidated financial statements include the accounts of
ACTIVITY AND Enviro-Clean of America, Inc. and its Subsidiaries (collectively the "Company"). All
SUMMARY OF SIGNIFICANT significant intercompany transactions, balances and profits have been eliminated in
ACCOUNTING POLICIES: consolidation. The consolidated statements give retroactive effect to the merger
with Kandel and Son, Inc. ("Kandel").
On January 15, 1999 the Company completed a transaction whereby effective January 1,
1999, Enviro-Clean of America, Inc. ("Enviro-Clean") merged with Kandel. Thereafter
Kandel became a wholly owned subsidiary of Enviro-Clean. Prior to the merger
Kandel's fiscal year-end was August 31 and Enviro-Clean's was December 31.
Subsequent to the merger, the Company adopted a calendar year-end. As a result of
the change in fiscal year and the merger accounted for as a pooling of interests, the
Company's 1998 financial statements have been recast to a 12-month period ending
December 31, 1998. The financial statements have been restated to retroactively
combine Kandel's financial statements as if the merger had occurred at the beginning
of the earliest period presented.
The consolidated statements of operations, cash flows, and stockholders' deficiency
for the year ended December 31, 1998 reflect the results of operations and cash flows
for Enviro-Clean for the period from December 9, 1997 (date of inception) to December
31, 1998 combined with Kandel for the year ended September 30, 1998. The
consolidated balance sheet as of December 31, 1998 reflects the financial position of
Enviro-Clean on that date combined with the financial position of Kandel as of
September 30, 1998. As a result of Enviro-Clean and Kandel having different fiscal
years and the change in the Company's fiscal year, Kandel's results of operations for
the three-month period ended December 31, 1998 have been excluded from the reported
results of operations. Additionally, Kandel's results of operations for the month of
September 1997 has been excluded from the reported results of operations. There were
no intervening events that materially affect the financial position or results of
operations of the companies. Kandel's revenue for the three-month period ended
December 31, 1998 and the one-month period ended September 30, 1997 was $443,142 and
146,526, respectively. Kandel's net income for the three-month period ended December
31, 1998 and the one-month period ended September 30, 1997 was $27,150 and $4,921,
respectively.
The principal business activity of the Company is the consolidation of companies in
the sanitary supply and chemical industry. Additionally, the Company distributes
products in the sanitary supply and chemical industry.
The Company recognizes revenue when products are shipped.
The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.
The Company maintains cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit risk on
cash.
</TABLE>
F-23
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Merchandise inventories, consisting of finished goods, are valued at the lower of
cost or market. Cost is determined using the first-in, first-out methods.
Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment is provided for by the straight-line method over the estimated
useful lives of the respective assets. Leasehold improvements are amortized over the
shorter of the economic life of the improvement or the lease term.
The Company identifies and records impairment on long-lived assets when events and
circumstances indicate that such assets have been impaired. The Company periodically
evaluates the recoverability of its long-lived assets based on expected nondiscounted
cash flows and recognizes impairment, if any, based on expected discounted cash flows.
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates by management. Actual results
could differ from these estimates.
The estimated fair values of the notes receivable, line of credit and notes payable
approximate their carrying amounts due to the short-term nature of the instruments.
Earnings per share ("EPS") is computed by dividing net income or loss by the
weighted-average number of common shares outstanding for the year. Diluted EPS is
not presented because the Company had no dilutive securities outstanding at December
31, 1998.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
accompanying financial statements.
2. ACQUISITION DEPOSITS: Acquisition deposit consists of $500,000 of cash paid in advance of closing for
NISSCO acquired in January 1999. Such amount was a good faith advance payment on the
acquisition.
3. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of:
Depreciation
Period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Furniture, fixtures and equipment $ 51,861 5 years
Leasehold improvements 24,328 5 years
Transportation and delivery equipment 169,848 5 years
Computer hardware 3,488 3 years
- ---------------------------------------------------------------------------------------------------
249,525
</TABLE>
F-24
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Less accumulated depreciation 120,702
-----------------------------------------------------------------------------------------------
$128,823
===============================================================================================
</TABLE>
<TABLE>
<S> <C>
4. COMMITMENTS AND The Company leases office and warehouse facilities under a noncancelable operating
CONTINGENCIES: lease expiring December 31, 2000.
The lease contains escalation clauses relating to operating expenses and real estate
taxes. Total rent expense for the operating lease was approximately $37,000 for the
year ended September 30, 1998.
Future minimum lease payments under these leases are as follows:
Year ending December 31,
1999 $37,863
2000 38,999
---------------------------------------------------------------------------------------------------
$76,862
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
5. INCOME TAXES: The difference between the income tax provision (benefit) computed at the federal
statutory rate and the actual tax provision (benefit) is accounted for as follows:
Taxes (benefit) computed at the federal statutory rate $(50,000)
Taxes computed at a rate below the federal statutory rate 30,000
Valuation allowance 20,000
----------------------------------------------------------------------------------------------------
$ - 0 -
====================================================================================================
</TABLE>
<TABLE>
<S> <C>
The tax effects of loss carryforwards and the valuation allowance that give rise to the deferred
income tax asset at December 31, 1998 are as follows:
Net operating losses $ 20,000
Less valuation allowance (20,000)
----------------------------------------------------------------------------------------------------
Deferred income tax asset $ - 0 -
====================================================================================================
As of December 31, 1998, the Company had net operating loss carryforwards available to offset future
taxable income of approximately $152,000 which expire through 2013. Between December 1997 and
December 1998, the Company completed offerings of securities. Under
</TABLE>
F-25
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Section 382 of the Internal Revenue Code, these activities effect an ownership change and thus may
severely limit, on an annual basis, the Company's ability to utilize its net operating loss
carryforwards. The Company uses the lowest marginal U.S. corporate tax of 15% to determine deferred
tax amounts and the related valuation allowance because the Company had no taxable earnings through
December 31, 1998.
6. NOTES PAYABLE: Long-term debt consists of the following at December 31, 1998:
8.05% stockholder loan, payable in 120 monthly $301,084
installments of $4,085, due March 1, 2007
8.22% stockholder loan, payable in 120 monthly 227,250
installments of $4,899, due June 1, 2003
Other stockholder advances, noninterest-bearing (71,983)
Various transportation and delivery equipment loans 29,420
payable in monthly installments through December 1998
including interest at varied rates
---------------------------------------------------------------------------------------------------
485,771
Less current maturities (97,140)
---------------------------------------------------------------------------------------------------
$388,631
===================================================================================================
Total interest charged against earnings was $63,925.
</TABLE>
<TABLE>
<S> <C>
7. RETIREMENT PLANS: Kandel (a subsidiary) has both defined benefit and defined contribution plans. All
nonunion employees are eligible for participation following completion of 6 months of
service and attainment of age 20-1/2. Participants begin to vest after two years of
service and are fully vested after six years. The contributions made during the year
were approximately $20,000.
Effective September 1, 1998, the Company terminated the defined benefit plan and
consolidated the assets with those of the defined contribution plan. Both plans are
in compliance with Internal Revenue Code and regulations and are properly funded.
8. STOCKHOLDERS' EQUITY: In December 1997, the Company received net proceeds of $3,000 from the issuance of
3,000,000 shares of stock to the Company's founders.
</TABLE>
F-26
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
In December 1997, the Company received net proceeds of $89,500 from the issuance of
179,000 shares of common stock in connection with a private placement.
During 1998, the Company received net proceeds of $790,515 from the issuance 511,000
shares of common stock in connection with private placements.
In December 1998, the Company received a subscription to preferred stock in advance
in the amount of $175,000.
9. RELATED PARTY During 1998, stockholders advanced various amounts to the Company for the payment of
TRANSACTIONS: expenses. Such advances totaled less than $25,000. All such amounts were
noninterest-bearing and were repaid during the period.
The Company has loans payable to a stockholder (see Note 6).
10. SUBSEQUENT EVENTS: In 1999, the Company authorized up to 500,000 shares of Series A convertible
redeemable preferred stock with a par value of $.001 and a stated value of $5 per
share. The Series A preferred stock pays cumulative cash dividends of 4% per year.
The dividend is payable quarterly in arrears, on the last day of each calendar
quarter. The first dividend payment date is June 30, 1999. Upon any liquidation,
dissolution, or winding up of the Company, the holders of Series A preferred stock
shall be entitled to receive $5 per share of preferred stock plus any unpaid
dividends, prior to any payments or distributions to holders of any junior
securities, as defined. Each share of preferred stock is convertible into shares of
common stock at the conversion price of initially $2.50 per share at the option of
the holder. On the fifth anniversary of the issue date, for each share of preferred
stock not previously converted, such share will automatically be convertible into
shares of common stock at the then-applicable Conversion Price. The Company will, at
any time after January 15, 2001, have the right to redeem any or all shares of Series
A preferred stock for $5 per share plus any unpaid dividends.
In 1999, the Company authorized and issued 70,000 shares of Series E convertible
redeemable preferred stock with a par value of $.001 and stated value of $2.50 per
share. The Series E preferred stock pays cumulative cash dividends of 3% per year.
The dividend is payable quarterly in arrears, on the last day of each calendar
quarter. The first dividend payment date is June 30, 1999. Upon liquidation,
dissolution, or winding up of the Company, the holders of Series E preferred stock
shall be entitled to receive $2.50 per share of preferred stock plus any unpaid
dividends, prior to any payments or distributions to holders of any junior
securities, as defined. Each share of preferred stock is convertible into shares of
common stock at the conversion price of initially $2.50 per share at the option of
the holder. On the fifth anniversary of the issue date, for each share of preferred
stock not previously converted, such share will automatically be convertible into
shares of common stock at the then applicable Conversion Price. The Company will, at
any time after two years from the issue date, have the right
</TABLE>
F-27
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
to redeem any or all shares of Series E preferred stock for $3.50 per share plus
any unpaid dividends.
On January 15, 1999, the Company entered into an agreement to purchase all of the
stock of NISSCO/Sunline, Inc., a Florida-based company engaged in group marketing of
sanitary/janitorial supplies. The aggregate purchase price for this acquisition is
$3,000,000, consisting of $500,000 in cash and 1,000,000 shares of the Company's
common stock. The common stock will be issued to the seller in installments, as
defined in the agreement. This acquisition will be accounted for as a purchase.
In January 1999, the Company issued 70,000 shares of common stock for an aggregate
price of $175,000.
In March 1999, the Company issued 100,000 shares of common stock for an aggregate
price of $250,000.
In April 1999, the Company issued 50,000 shares of common stock for an aggregate
purchase price of $125,000.
In May 1999, the Company issued 100,000 shares of common stock for an aggregate
purchase price of $250,000.
In June 1999, the Company issued 50,000 shares of common stock for an aggregate
purchase price of $125,000.
In June 1999, the Company issued 300 units, which consist of warrants and notes
payable, for an aggregate purchase price of $3,000,000.
In July 1999, the Company issued 16,000 shares of common stock for an aggregate
purchase price of $40,000.
On August 1, 1999, the Company acquired Cleaning Ideas, Inc. and Subsidiary
(collectively "Cleaning Ideas"). The acquisition was accomplished by a merger into a
subsidiary of Enviro-Clean established for the acquisition. Terms of the acquisition
to the Company shareholders were:
1. $500,000 in cash,
2. 320,000 shares of Enviro-Clean Series D preferred stock, and
3. Secured promissory note of $900,000 payable in quarterly installments of $112,500
plus interest at 8.75% per annum.
Effective on August 19, 1999, Superior Chemical & Supply, Inc. was purchased by
Enviro-Clean in consideration for $400,000 in cash, $1,200,000 in a note payable over
three years, and 50,000 shares of common stock of Enviro-Clean which were placed in
escrow.
</TABLE>
F-28
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
================================================================================
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Enviro-Clean of America, Inc.
We have audited the accompanying balance sheet of Enviro-Clean of America, Inc.
and Subsidiaries as of August 31, 1997, and the related statements of income,
retained earnings, and cash flows for the year 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 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 Enviro-Clean of America, Inc.
and Subsidiaries as of August 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
KIRSCHNER & PASTERNACK, LLP
Great Neck, New York
April 12, 1999
F-29
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
BALANCE SHEET
================================================================================
August 31, 1997
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,231
Accounts receivable 204,643
Merchandise inventory 133,200
Prepaid expenses and other 21,060
- --------------------------------------------------------------------------------
Total current assets 362,134
- --------------------------------------------------------------------------------
Property, Plant and Equipment - at cost 228,817
Less accumulated depreciation (77,789)
- --------------------------------------------------------------------------------
151,028
- --------------------------------------------------------------------------------
Other Assets 5,775
- --------------------------------------------------------------------------------
Total Assets $ 518,937
================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 104,171
Loans payable 98,918
Current maturities of long-term debt 113,657
- --------------------------------------------------------------------------------
Total current liabilities 316,746
- --------------------------------------------------------------------------------
Long-term Liabilities - long-term debt, less current maturities 514,350
- --------------------------------------------------------------------------------
Stockholders' Deficiency:
Common stock 3,000
Retained earnings 60,505
Cost of Treasury Stock (375,664)
- --------------------------------------------------------------------------------
Stockholders' deficiency (312,159)
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 518,937
================================================================================
F-30
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
STATEMENT OF EARNINGS AND RETAINED EARNINGS
================================================================================
Year ended August 31, 1997
- --------------------------------------------------------------------------------
Net sales $1,803,946
Cost of sales 878,795
- --------------------------------------------------------------------------------
Gross profit 925,151
- --------------------------------------------------------------------------------
Operating expenses:
Salaries 326,788
Professional fees 15,225
Rent 36,505
Marketing 1,508
Depreciation 26,067
Other 419,396
- --------------------------------------------------------------------------------
825,489
- --------------------------------------------------------------------------------
Operating income 99,662
Interest expense 65,298
- --------------------------------------------------------------------------------
Earnings before income taxes 34,364
Income taxes 3,072
- --------------------------------------------------------------------------------
Net earnings 31,292
Retained earnings at September 1 29,213
- --------------------------------------------------------------------------------
Retained earnings at August 31 $ 60,505
================================================================================
F-31
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
================================================================================
Year ended August 31, 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 31,293
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 26,067
Increase in accounts receivable (7,469)
Decrease in prepaid expenses 11,093
Decrease in inventories 7,900
Decrease in accounts payable (27,931)
- --------------------------------------------------------------------------------
Total adjustments 9,660
- --------------------------------------------------------------------------------
Net cash provided by operating activities 40,953
- --------------------------------------------------------------------------------
Cash flows used in investing activities - purchase of fixed assets (96,909)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings on line of credit 98,918
Principal payments on debt (43,930)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 54,988
- --------------------------------------------------------------------------------
Net decrease in cash and equivalents (968)
Cash and equivalents at September 1, 1996 4,199
- --------------------------------------------------------------------------------
Cash and equivalents at August 31, 1997 $ 3,231
================================================================================
Supplemental Data:
Cash paid during the year:
Interest expense $ 64,340
================================================================================
Income taxes $ 980
================================================================================
F-32
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. BUSINESS AND In January 1999, Enviro-Clean of America, Inc. ("Enviro-
SUMMARY OF Clean") merged with Kandel and Son Inc. ("Kandel") in a
ACCOUNTING combination accounted for as a pooling of interests. The
POLICIES: historic results of operation of Kandel have been
restated as if the two companies had always been
combined. For the year ended August 31, 1997, the
results of operations of the Company include only the
historic results of Kandel as Enviro-Clean did not yet
exist.
Enviro-Clean and Subsidiaries (collectively the
"Company") is primarily engaged in the wholesale
distribution of sanitary maintenance supplies and paper
products.
Assets and liabilities and revenue and expenses are
recognized on the accrual basis of accounting.
Inventories, consisting of finished goods, are valued at
the lower of cost or market. Cost is determined using
the first-in, first-out method.
Depreciation of property, plant and equipment is
provided for 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 and equipment is comprised of the
following at cost:
Furniture and equipment $ 48,141
Leasehold improvements 24,328
Transportation and delivery equipment 156,348
--------------------------------------------------------
228,817
Less accumulated depreciation (77,789)
--------------------------------------------------------
$151,028
========================================================
Expense charged to earnings $ 26,067
========================================================
Accounts receivable are reported net of an allowance for
doubtful accounts of $14,022.
Income taxes are provided for the tax effect of
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes for
operating losses that are available to offset future
taxable income.
The Company has loss carryforwards totaling $77,570
available to offset future taxable income.
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required too make estimates and assumptions that affect
the reported amounts of assets and liabilities and
F-33
<PAGE>
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the
reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates. The Company estimates an allowance for
doubtful accounts based on the creditworthiness of its
customers, as well as general economic conditions.
Consequently, an adverse change in those factors could
affect the Company's estimate.
2. LOANS PAYABLE: The Company has a $100,000 line of credit facility with
Citibank, N.A. The outstanding balance is $98,918
payable in minimum monthly installments of interest only
at prime, currently at 8.5% per annum.
Long-term debt consists of the following at August 31,
1997:
Stockholder loan payable in monthly
installments of $8,985 including
interest at approximately 8% $ 558,944
Various transportation and delivery
equipment loans payable in monthly
installments of $3,655 through
December 1998 including interest of
varying rates 69,063
--------------------------------------------------------
628,007
Less current maturities (113,657)
--------------------------------------------------------
$ 514,350
========================================================
Total interest charged against earnings
was $ 65,298
========================================================
3. COMMITMENTS AND The Company leases certain office and warehouse
CONTINGENCIES: facilities in Hicksville, NY under a lease expiring
December 31, 2000. Minimum rental commitments under the
lease aggregates $125,519.
Rent expense charged to earnings was $36,505.
4. RETIREMENT PLANS: The Company has both defined benefit and defined
contribution plans. All non-union employees are eligible
for participation following completion of 6 months of
service and attainment of age 20-1/2. Participants begin
to vest after two years of service and are fully vested
after six years. The contributions made during the year
were $44,895.
5. COMMON STOCK: Shares authorized $20,000
Issued and outstanding 5,000
Stated value 3,000
--------------------------------------------------------
F-34
<PAGE>
NISSCO, INC. & SUBSIDIARIES
================================================================================
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
NISSCO, Inc. & Subsidiaries
14848 Old U.S. 41
#1 Sunburst Center
Naples, FL 34110
We have audited the accompanying balance sheet of NISSCO, Inc. & Subsidiaries (a
Florida corporation) as of December 31, 1998, and the related statements of
income, retained earnings, and cash flows for the year 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 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.
The accompanying statements were prepared to present the net assets and
continuing operations of NISSCO, Inc. & Subsidiaries sold to Enviro-Clean of
America, Inc. pursuant to the purchase agreement described in Note 4. It is not
intended to be complete presentations of NISSCO, Inc. & Subsidiaries' assets and
liabilities or operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NISSCO, Inc. & Subsidiaries as
of December 31, 1998 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KIRSCHNER & PASTERNACK LLP
Great Neck, New York
April 12, 1999
F-35
<PAGE>
NISSCO, INC. & SUBSIDIARIES
BALANCE SHEET
================================================================================
December 31, 1998
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 17,259
Accounts receivable 507,331
Prepaid expenses 2,001
- --------------------------------------------------------------------------------
Total current assets 526,591
Fixed Assets 57,487
- --------------------------------------------------------------------------------
Total Assets $ 584,078
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accruals $ 321,670
Due to stockholder 141,621
Taxes payable 98,000
- --------------------------------------------------------------------------------
Total liabilities 561,291
- --------------------------------------------------------------------------------
Stockholder's Equity:
Common stock - $1 par value, issued 110 shares 1,100
Retained earnings 21,687
- --------------------------------------------------------------------------------
Total stockholder's equity 22,787
- --------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $ 584,078
================================================================================
F-36
<PAGE>
NISSCO, INC. & SUBSIDIARIES
STATEMENT OF INCOME
================================================================================
Year ended December 31, 1998
- --------------------------------------------------------------------------------
Revenue $1,789,202
Cost of sales and services 231,611
- --------------------------------------------------------------------------------
Gross profit 1,557,591
- --------------------------------------------------------------------------------
Operating expenses:
Salaries 547,763
Professional fees 29,496
Rent 28,488
Marketing 111,085
Depreciation 4,462
Other 378,356
- --------------------------------------------------------------------------------
1,099,650
- --------------------------------------------------------------------------------
Operating income 457,941
Interest expense 7,953
- --------------------------------------------------------------------------------
Income before income taxes 449,988
Income taxes 102,000
- --------------------------------------------------------------------------------
Net income $ 347,988
================================================================================
F-37
<PAGE>
NISSCO, INC. & SUBSIDIARIES
STATEMENT OF CHANGES IN RETAINED EARNINGS
================================================================================
Year ended December 31, 1998
- --------------------------------------------------------------------------------
Retained earnings at January 1, 1998 $ 10,320
Net earnings for year 347,988
Dividends paid or accrued (336,621)
- --------------------------------------------------------------------------------
Retained earnings at December 31, 1998 $ 21,687
================================================================================
F-38
<PAGE>
NISSCO, INC. & SUBSIDIARIES
STATEMENT OF CASH FLOWS
================================================================================
Year ended December 31, 1998
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 347,988
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 7,727
Increase in accounts receivable (3,199)
Increase in prepaid expenses (841)
Decrease in stockholder loan receivable 159,070
Decrease in accounts payable (322,164)
Increase in dividends due stockholder and other accruals 141,621
Increase in income taxes payable 12,374
- --------------------------------------------------------------------------------
Total adjustments (5,412)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 342,576
- --------------------------------------------------------------------------------
Cash flows from investing activity - cash payments for the purchase of
equipment (33,659)
- --------------------------------------------------------------------------------
Cash flows from financing activity - dividends paid or accrued (336,621)
- --------------------------------------------------------------------------------
Net decrease in cash and equivalents (27,704)
Cash and cash equivalents, January 1 44,963
- --------------------------------------------------------------------------------
Cash and cash equivalents, December 31 $ 17,259
================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Taxes $ 35,962
================================================================================
Interest $ 7,953
================================================================================
F-39
<PAGE>
NISSCO, INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. BUSINESS NISSCO Inc. & Subsidiaries (collectively the "Company")
AND SUMMARY is primarily engaged in providing buying services and
OF ACCOUNTING group discounts to wholesale distributors of sanitary
POLICIES: maintenance supplies, paper goods and related products.
The Company's services are provided to various entities
located in the eastern United States.
Assets and liabilities and revenue and expenses are
recognized on the accrual basis of accounting.
Service income is based primarily on percentages applied
to member-customer's purchases from suppliers. Income is
recognized when substantially all events relative to the
underlying purchase have been completed. Collections are
normally received in 30 to 180 days. An estimated
allowance is provided for uncollectible accounts.
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. Assets are comprised of the following:
(i) Furniture, fixtures and equipment $ 208,507
Improvements 5,690
Less accumulated depreciation (156,710)
--------------------------------------------------------
Net fixed assets $ 57,487
Receivables are reported net of an allowance for
doubtful accounts of $26,692.
Income taxes are provided for the tax effects of
transactions currently reported in the financial
statements. Differences between financial and income tax
earnings do not give rise to material deferrals.
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. The Company 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 the Company's estimate.
F-40
<PAGE>
NISSCO, INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
2. COMMITMENTS AND The Company leases certain office and warehouse
CONTINGENCIES facilities in Naples, Florida, under a lease expiring
September 30, 2000.
Year ending December 31,
1999 $10,000
2000 7,500
--------------------------------------------------------
$17,500
========================================================
Rent expense charged to earnings was $28,488.
3. RETIREMENT PLANS: The Company adopted a Savings Incentive Match Plan
("SIMPLE" IRA) for all eligible employees effective
February 4, 1998. The employer matches employee salary
deferrals up to a maximum of 3% of compensation.
4. SUBSEQUENT EVENTS: Effective January 1, 1999, the sole stockholder sold all
of his shares to Enviro-Clean of America, Inc. ("EVCL").
The purchase price is $500,000 plus 250,000 shares of
EVCL per year each January for four years commencing in
1999. The first two years' stock is restricted by
contract for two years from the date of issuance. The
last two years' stock is restricted by contract for one
year from the date of issuance. Additionally, there are
consulting and/or employment contracts with the
stockholder that run for the term of the agreement. A
deposit of $484,000 was paid to the shareholder in
October 1998.
The nonacquired assets and nonassumed liabilities were
removed from the Companies' reports in 1997 and 1998.
The excess net asset value of 1997 over 1998 is
reflected as a stockholder receivable at December 31,
1997. This amount was settled and reduced to $-0- in
1998.
5. CONSOLIDATED From 1996 through 1999, changes of corporate entities
STATEMENTS: have taken place. However, the companies have
effectively operated as one during that period of time
through common ownership and management. Sunline
Partners, Inc. was merged into NISSCO Inc. December 31,
1996. NISSCO/Sunline Inc. was incorporated in September
1998 and became the parent company of NISSCO Inc. NISSCO
Inc. (New) continues as an unrelated company owned by
the former stockholder. NISSCO/Sunline, Inc. is the
entity acquired by Enviro-Clean of America, Inc. (see
Note 4).
F-41
<PAGE>
NISSCO, INC. & SUBSIDIARIES
================================================================================
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
NISSCO, Inc. & Subsidiaries
14848 Old U.S. 41
#1 Sunburst Center
Naples, FL 34110
We have audited the accompanying balance sheet of NISSCO, Inc. & Subsidiaries (a
Florida corporation) as of December 31, 1997, and the related statements of
income, retained earnings, and cash flows for the year 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 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.
The accompanying statements were prepared to present the net assets and
continuing operations of NISSCO, Inc. & Subsidiaries sold to Enviro-Clean of
America, Inc. pursuant to the purchase agreement described in Note 4. It is
not intended to be complete presentations of NISSCO, Inc. & Subsidiaries assets
and liabilities or operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NISSCO, Inc. & Subsidiaries as
of December 31, 1997 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KIRSCHNER & PASTERNACK LLP
Great Neck, NY
April 12, 1999
F-42
<PAGE>
NISSCO, INC. & SUBSIDIARIES
BALANCE SHEET
================================================================================
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 44,963
Accounts receivable 504,132
Prepaid expenses 1,160
Advances to stockholders 159,070
- --------------------------------------------------------------------------------
Total current assets 709,325
Fixed Assets 31,555
- --------------------------------------------------------------------------------
Total Assets $ 740,880
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accruals $ 643,834
Taxes payable 85,626
- --------------------------------------------------------------------------------
Total liabilities 729,460
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $1 par value; issued 1,100 shares 1,100
Retained earnings 10,320
- --------------------------------------------------------------------------------
Total stockholders' equity 11,420
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 740,880
================================================================================
F-43
<PAGE>
NISSCO, INC. & SUBSIDIARIES
STATEMENT OF INCOME
================================================================================
Year ended December 31, 1997
- --------------------------------------------------------------------------------
Revenue $2,535,888
Cost of sales and services 739,210
- --------------------------------------------------------------------------------
Gross profit 1,796,678
- --------------------------------------------------------------------------------
Operating expenses:
Salaries 509,334
Professional fees 21,809
Rent 29,576
Marketing 94,022
Depreciation 3,899
Other 529,570
- --------------------------------------------------------------------------------
Total operating expenses 1,188,210
- --------------------------------------------------------------------------------
Operating income 608,468
Interest expense 13,374
- --------------------------------------------------------------------------------
Income before income taxes 595,094
Income taxes 85,626
- --------------------------------------------------------------------------------
Net income $ 509,468
================================================================================
F-44
<PAGE>
NISSCO, INC. & SUBSIDIARIES
STATEMENT OF CHANGES IN RETAINED EARNINGS
================================================================================
Year ended December 31, 1997
- --------------------------------------------------------------------------------
Retained earnings at January 1 $ 398,903
Net earnings for year 509,468
Distribution of nonacquired assets (898,051)
- --------------------------------------------------------------------------------
Retained earnings at December 31 $ 10,320
================================================================================
F-45
<PAGE>
NISSCO, INC. & SUBSIDIARIES
STATEMENT OF CASH FLOWS
================================================================================
Year ended December 31, 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 509,468
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,328
Increase in accounts receivable (261,743)
Increase in loans receivable - shareholders (159,070)
Decrease in accounts payable (50,467)
Decrease in income taxes payable (41,152)
- --------------------------------------------------------------------------------
Total adjustments (508,104)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 1,364
Cash flows from investing activity - cash payments for the purchase
of equipment (13,281)
- --------------------------------------------------------------------------------
Net decrease in cash and equivalents (11,917)
Cash and cash equivalents at January 1 56,880
- --------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 44,963
================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Taxes $ 126,497
================================================================================
Interest $ 13,374
================================================================================
F-46
<PAGE>
NISSCO, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. BUSINESS NISSCO Inc. & Subsidiaries (the "Company") is primarily
SUMMARY AND engaged in providing buying services and group discounts
ACCOUNTING to wholesale distributors of sanitary maintenance
POLICIES: supplies, paper goods and related products. The
Company's services are provided to various entities
located in the eastern United States.
Assets and liabilities and revenue and expenses are
recognized on the accrual basis of accounting.
Service income is based primarily on percentages applied
to member-customer's purchases from suppliers. Income is
recognized when substantially all events relative to the
underlying purchase have been completed. Collections are
normally received in 30 to 180 days. An estimated
allowance is provided for uncollectible accounts.
Depreciation of property, plant and equipment is
provided for 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.
Assets are comprised of the following:
Furniture, fixtures and equipment $180,538
Less accumulated depreciation 148,983
--------------------------------------------------------
Net fixed assets $ 31,555
========================================================
Receivables are reported net of an allowance for
doubtful accounts of $49,423.
Income taxes are provided for the tax effects of
transactions currently reported in the financial
statements. Differences between financial and income tax
earnings do not give rise to material deferrals.
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. The Company 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 the Company's estimate.
F-47
<PAGE>
NISSCO, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. COMMITMENTS AND The Company leases certain office and warehouse
facilities in Naples, Florida, under a lease expiring
September 30, 2000.
Minimum annual rental commitments under the leases are
summarized as follows:
1998 $10,000
1999 10,000
2000 7,500
--------------------------------------------------------
$27,500
========================================================
Rent expense charged to earnings was $29,576.
3. RETIREMENT PLANS: The Company adopted a Savings Incentive Match Plan
("SIMPLE" IRA) for all eligible employees effective
February 4, 1998. The employer matches employee salary
deferrals up to a maximum of three per cent of
compensation.
4. SUBSEQUENT EVENTS: Effective January 1, 1998, the sole stockholder sold all
of his shares to Enviro-Clean of America, Inc. ("EVCL").
The purchase price is $500,000 plus 250 thousand shares
of EVCL per year each January for four years commencing
in 1999. The first two years stock is restricted by
contract for two years from the date of issuance. The
last two years stock is restricted by contract for one
year from the date of issuance. Additionally there are
consulting and or employment contracts with the
shareholder that run for the term of the agreement. A
deposit of $484,000 was paid to the shareholder in
October 1998.
The nonacquired assets and non-assumed liabilities were
removed from the companies' reports in 1997 and 1998.
The excess net asset value of 1997 over 1998 is
reflected as a shareholder receivable at December
31,1997. This amount is settled and reduced to $-0- in
1998.
5. CONSOLIDATED From 1996 through 1999, changes of corporate entities
STATEMENTS: have taken place. However, the companies have
effectively operated as one during that period of time
through common ownership and management. Sunline
Partners, Inc. was merged into NISSCO Inc. December 31,
1996. NISSCO/Sunline Inc. was incorporated in September
1998 and became the parent company of NISSCO Inc. NISSCO
Inc. (New) continues as an unrelated company owned by
the former shareholder. NISSCO/Sunline, Inc. is the
entity acquired by Enviro-Clean of America, Inc. (see
Note 4).
F-48
<PAGE>
PART III
Item 1. Index to Exhibits.
Index Exhibit
2(i) Stock Purchase Agreement among Enviro-Clean of America, Inc.,
Enviroacq I Co. and Kandel & Son dated as of January 1, 1999*
2(ii) Stock Purchase Agreement among Enviro-Clean of America, Inc.
Enviroacq II Co. and NISSCO/Sunline, Inc. dated as of January 1,
1999*
2(iii) Agreement & Plan of Merger of Cleaning Ideas, Inc.**
2(iv) Stock Purchase Agreement of Superior Chemical & Supply, Inc.**
2(v) Articles of Incorporation of the Company*
2(vi) By-Laws of the Company*
3(i) Certificate of Designation for the Company's Series A Stock*
3(ii) Certificate of Designation for the Company's Series E Stock*
3(iii) Subscription Agreement between the Company and Steven C. Etra
regarding the purchase and sale of the Series E Stock***
3(iv) Certificate of Designation for the Company's Series D Stock**
3(v) Certificate of Amendment to the Certificate of Designation for the
Company's Series A Stock***
3(vi) Form of 12.75% Subordinate Note***
3(vii) Form of the Warrant Certificate***
3(viii) Pledge and Security Agreement between the Company and Charles H.
Davis**
3(ix) Security Agreement between the Company and Stephen Haynes**
46
<PAGE>
Index Exhibit
3(x) Registration Rights Agreement among the Company, Charles H. Davis
and Randall K. Davis**
3(xi) Certificate of Designation for the Company's Series B
Stock****
3(xii) Agreement between the Company and b2bstores.com, Inc.****
3(xiii) Form of the Subscription Agreement for Series B Stock and
warrants****
3(xiv) Form of the Warrant Certificate****
3(xv) Registration rights Agreement between the Company and purchasers
of Series B Stock and 1000 common stock warrants.****
3(xvi) Warrant Agreement****
6(i) Employment Agreement between the Company and Richard Kandel***
6(ii) Employment Agreement between the Company and Randall K. Davis***
6(iii) Employment Agreement between CIC and Randall K. Davis**
6(iv) Employment Agreement between CIC and Charles H. Davis**
6(v) Employment Agreement between Superior and Stephen Haynes**
6(vi) Consulting Agreement between the Company and Steven C. Etra***
21 List of Subsidiaries of the Company*
__________________________
* Incorporated by reference to the Company's Form 10-SB filed with the
Commission on June 16, 1999.
** Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on September 3, 1999.
*** Incorporated by reference to the Company's Amendment No. 1 to Form 10-SB
filed with the Commission on October 22, 1999.
**** Incorporation by reference to the Company's Amendment No.2 to Form 10-SB
filed with the Commission on December 16, 1999.
47
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ RICHARD KANDEL
-----------------------------------
Richard Kandel
Chairman of the Board and
Chief Executive Officer
Date: January 28, 2000
48
