<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT.
For the transition period from _________ to _________
Commission file number 0-20940
CLEAN-X-PRESS, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
COLORADO 84-1210544
<S> <C>
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
2351 POWELL ST., SUITE 502, SAN FRANCISCO, CALIFORNIA 94133
(Address of principal executive offices)
415-788-8383
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X NO
--- ---
As of May 22, 1996, there were approximately 12,368,100 shares of the
Company's Common Stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited interim financial statements of the Company,
pursuant to Item 310(b) of Regulation S-B, for the quarter ended March 31, 1996,
are filed as part of this Form 10-QSB.
Financial Statements:
Consolidated Balance Sheet at
March 31, 1996 and December 31, 1995 (unaudited)
Consolidated Statement of Operations for the three & six
months ended March 31, 1995 and 1996 (unaudited)
Consolidated Statement of Cash Flows for the three & six
months ended March 31, 1995 and 1996 (unaudited)
Notes to Financial Statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
General
Clean-X-Press, Inc. (the "Company"), formerly Patent Pending,Inc.
("PPI"), was incorporated in the State of Colorado on November 21, 1988. PPI's
activities from inception through its fiscal year ended September 30, 1994,
consisted primarily of reviewing possible business opportunities and
acquisitions, and maintaining the business entity. PPI had no operational
activities during this period and all expenses incurred were solely related to
maintaining the entity and reviewing potential business opportunities.
In October of 1994, the Company entered into a Share Exchange Agreement
and Plan of Reorganization (the "Plan"), whereby the Company acquired 100% of
the issued and outstanding shares of Clean-X-Press, Inc. ("CXP"), a corporation
formed under the laws of the State of California on October 18, 1993. As a
result of the Plan, CXP became a wholly-owned subsidiary of the Company. CXP is
engaged in the business of owning and operating fabric care stores know as
"Clean-X-Press," which offer a variety of fabric care services, including coin
operated laundry service and dry cleaning service. CXP commenced business
operations in May of 1994.
On October 4, 1995, the Company entered into a Share Exchange Agreement
(the "Exchange Agreement") with Aqua Clean International, Inc., an Arizona
corporation ("ACI"), pursuant to which the Company acquired from ACI 100% of the
issued and outstanding common stock of Ecoprenuer Consumer Services, Inc., an
Arizona corporation ("ECSI") in exchange for 700,000 shares of the Company's
common stock. ECSI was incorporated under the laws of the State of Arizona in
August of 1993 and since its inception, ECSI's operations have consisted of
franchising independent coin-operated laundry, dry cleaning and reverse osmosis
water purification businesses. As a result of the Share Exchange Agreement, ECSI
became a wholly-owned subsidiary of the Company.
Results of Operations
Revenues for the fiscal quarter ended March 31, 1996, were primarily
derived from the operation of the Company's fabric care stores and dry cleaning
plant. Revenues for the three months ended March 31, 1996, were $151,504.
Revenues for the three months ended March 31, 1995 were $262,350. Revenues for
the quarter ended March 31, 1996 declined $110,846 (or 42.25%) compared to the
fiscal quarter ended March 31, 1995. The decrease in Revenues can be attributed
in significant part to the temporary closure of one of the Company's store
during the quarter as a result of a leasehold dispute as well as a permanent
closure of two dry cleaning agencies due to the effect of negative cash flows.
For the fiscal quarter ended March 31, 1996, cost of revenues were
$260,111 or approximately 172% of Revenues. The cost of revenues for fiscal
quarter March 31, 1995 were $339,006 or approximately 129% of Revenues. The
$78,895 decrease in cost of revenues for fiscal quarter ended March 31, 1996
over March 31, 1995 can be attributed in significant part to
3
<PAGE> 4
decreased wages, rent and utilities expenses.
Consolidated selling, general and administrative ("SG&A") expenses for
the fiscal quarter ended March 31, 1996 were $363,218, an increase of $16,892
over the fiscal quarter ended March 31, 1995. SG&A expenses consisted of
administrative expenses for the Company's headquarters, the salaries of
corporate officers and office staff, travel, accounting, legal and other
professional fees, advertising and promotional costs, rent and occupancy costs.
For the fiscal quarter ended March 31, 1996, the Company incurred travel expense
in the approximate amount of $34,304, compared to no travel expenses for the
comparable 1995 fiscal quarter. The Company incurred advertising expenses of
$2,781 for the fiscal quarter ended March 31, 1996. There were no advertising
expense for the comparable 1995 fiscal quarter. The Company also incurred
professional fees, including accounting and legal fees in the approximate amount
of $111,124, an increase of $20,978 over the comparable 1995 quarter. Salaries
and benefits for the officers and administrative personnel also increased
significantly over the three months ended March 31, 1995, from $98,272 to
$191,136 during the fiscal quarter ended March 31, 1996. These SG&A expenses
were incurred in part, in connection with the development of the Company as a
public entity and the Company's efforts to expand its operations and finance
such development.
Interest expense for the fiscal quarter ended March 31, 1996 was
$12,777 compared to $20,130 for the March 31, 1995 quarter. The decrease of
$7535 in interest expense is a result of decrease in notes payable. Net loss for
the fiscal quarter ended March 31, 1996 was $484,602, an increase of $51,490
over the net loss of $433,112 for the fiscal quarter ended March 31, 1995.
Net loss per common share was $0.039 for the fiscal quarter ended March
31, 1996 and $0.058 for the fiscal quarter ended March 31, 1995. Net loss per
common share is based on the weighted average number of common shares
outstanding. There were 12,368,100 shares outstanding as at March 31, 1996,
compared to 7,625,500 shares outstanding as at March 31, 1995.
The Company believes that it will continues to incur losses from
operations until such time as additional fabric care stores are developed or
acquired which generate revenues which are sufficient to satisfy operational
expenses. There are no assurances that franchising revenues will ever be
sufficient to satisfy operational expenses or that the Company will secure the
requisite financing required to acquired additional fabric care stores.
No provision was made for Federal income tax since the Company has
incurred significant net operating losses from inception.
Liquidity and Capital Resources
Since the inception of CXP, the Company has received capital for
operations and store acquisitions from private investors in the Company's
securities and issuance of private party debt. During this period the Company
received revenues from the operation of the Company's fabric care stores. To
date, revenues have been insufficient to satisfy operating and administrative
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expenses. The Company, therefore, has been dependent in substantial part on
private placements of its securities and loans from private parties to satisfy
the differential between revenues and expenses. There are no assurances that
private capital will continue to be available or that revenues from operations
will increase to meet the Company's cash needs, particularly as these needs
relate to the acquisition and development of additional fabric care stores,
which the Company believes is required to reduce operational losses.
The Company's consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations, has an accumulated deficit and has
negative working capital, is currently unable to pay its on-going obligations as
they become due, and faces significant store development issues that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described below. The financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount of liabilities that might result should
the Company be unable to continue as a going concern.
Management anticipates growth of revenues in 1996 from expansion of
Company owned fabric care stores, and from the franchising of Clean-X-Press
stores through its ECSI subsidiary. There are no assurances that increased
revenues will be achieved through the expansion of Company owned fabric care
stores or from franchising activities. Moreover, the Company estimates that to
initiate and complete a store acquisition and development program which would
result in the acquisition of enough additional Company owned stores to reach
profitable operations will require the expenditure by the Company and/or a
strategic partner of between $3,000,000 and $5,000,000 over the next twelve
months. Operating revenues are not expected to be sufficient to fund this
development program, which will need to be financed at least in part out of the
proceeds, if any, from the sale of additional securities by the Company, private
party debt, through payments from potential strategic partners or through a
combination of these sources.
The Company historically has been able to generate funds from private
placements to provide capital for growth. The Company is currently contemplating
a private placement of approximately $5,000,000 of it convertible preferred
stock to fund its store acquisition and development program. However, the
Company has not identified any purchasers for these shares and does not have any
firm commitment from any broker-dealer firm to place the shares. The Company has
however been in discussions with one broker-dealer firm to place the shares on a
best efforts basis, however, no definitive agreement has been executed to date.
There can be no assurance that a sufficient amount of the Company's securities
will be sold to fund any of the operating needs of the Company or its
development program.
The Company anticipates a growth in franchising revenues in 1996 as the
result of franchise sales by brokers or directly by the Company's ECSI
subsidiary. However, no assurance can be given that such franchising revenues
will be sufficient to satisfy the operating needs of the Company.
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The Company does not have any commitments from potential purchasers of
any of its securities or for other financing from third parties, and there can
be no assurance that the Company will be able to sell any of its securities or
obtain other financing on terms attractive to the Company or at all. Should
required funding for operating needs or development programs not be available to
the Company through the sale of its securities, the Company anticipates that it
would attempt to accelerate revenues from franchising activities through
concerted marketing efforts and would attempt to reduce its operating costs by
selling certain Company owned fabric care stores in an attempt to reduce its
cash operating expenses to level within its anticipated revenues. The Company
believes that this plan would enable it to generate sufficient cash to support
such modified operations for the next twelve months, however there can be no
assurance that such revenues will be sufficient to meet even these requirements.
Failure by the Company to solve its liquidity problem, the solution to which is
anticipated by the Company's plan, could force the Company to seek protection
from its creditors under the bankruptcy laws.
As of March 31, 1996, the Company had current assets of $69,013 and
current liabilities of $3,345,120, resulting in negative working capital of
$3,276,107. The Company's negative working capital position is primarily a
result of $809,920 in deferred revenue associated with the sale of franchises,
$1,035,449 in accounts payable, $563,559 in accrued liabilities and $677,940 in
current maturities of long term obligations. At March 31, 1996, the Company's
cash position had decreased $4,074.
The Company currently has no firm commitments for material capital
expenditures, with any such future commitments being dependent upon the
availability of funds. The Company does not anticipate that future compliance
with existing environmental and occupational safety regulations will have a
significant impact on its capital expenditures or on its financial condition or
future operating results.
Effect of Inflation
The Company does not believe that general inflation would have a
material effect on its operations.
6
<PAGE> 7
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Clean-X-Press, inc.
Dated: May 22, 1996 By: /s/ John T. Wolohan
---------------------------------
John T. Wolohan
CEO
Dated: May 22, 1996 By: /s/ Yu (Thomas) Cheung
---------------------------------
Yu (Thomas) Cheung
Chief Financial Officer
7
<PAGE> 8
CLEAN-X-PRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS $ $
Cash 0
Due from affiliate 64,132 10,333
Prepaid expenses 4,881 4,026
----------- -----------
Total current assets 69,013 14,359
----------- -----------
FURNITURE & EQUIPMENT - net of accumulated depreciation 2,519,007 2,604,319
ORGANIZATION COSTS - net of accumulated amortization 56,480 58,923
OTHER
Deposits 107,327 88,162
Goodwill 190,813 190,813
Other assets 15 44,115
----------- -----------
Total assets $ 2,942,655 $ 3,000,691
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdraft $ 60,193 $ 21,853
Accounts payable 1,035,449 672,194
Accrued liabilities 563,559 607,729
Due to related parties 87,172 60,835
Current maturities of long-term obligations 506,763 475,058
Current maturities of notes payable to affiliates 171,177 171,177
Deferred franchise fees 809,920 809,920
Other liabilities 110,887 80,000
----------- -----------
3,345,120 2,898,766
----------- -----------
LONG TERM OBLIGATIONS 229,963 276,313
NOTES PAYABLE TO AFFILIATES 31,377 31,377
DEFERRED RENT 96,997 96,997
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock-$.001 par value, authorized 50,000,000
shares, no shares issued or outstanding
Common stock - $.001 par value, authorized 100,000,000
shares, and 12,368,100 shares outstanding 12,368 12,262
Additional contributed capital 3,810,249 3,783,793
Accumulated deficit (4,583,419) (4,098,817)
----------- -----------
Total stockholders' equity (760,802) (302,762)
----------- -----------
Total liabilities and stockholders' equity $ 2,942,655 $ 3,000,691
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 9
CLEAN-X-PRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31. March 31.
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 151,504 $ 262,350 $ 325,126 $ 460,331
COST OF REVENUES EARNED
Salaries & benefits 41,730 86,271 91,148 167,079
Rent expenses 55,269 128,800 154,880 193,337
Utilities expenses 32,763 45,280 57,365 77,584
Depreciation 83,681 41,496 167,365 89,778
Other 46,669 37,159 81,708 59,681
------------ ----------- ------------ -----------
Total cost of revenues earned 260,111 339,006 552,465 587,459
------------ ----------- ------------ -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries & benefits 191,136 98,272 367,350 219,876
Professional fees 111,124 90,146 217,098 163,649
Travel 34,304 50,848
Rent 15,847 10,987 32,717 27,433
Advertising 2,781 17,202
Other 8,027 146,921 132,072 230,216
------------ ----------- ------------ -----------
Total general and administrative expenses 363,218 346,326 817,286 641,174
------------ ----------- ------------ -----------
Loss from operations (471,825) (422,982) (1,044,625) (768,302)
INTEREST EXPENSES 12,777 20,130 35,298 27,068
------------ ----------- ------------ -----------
Net loss $ (484,602) $ (443,112) $ (1,079,923) $ (795,370)
============ =========== ============ ===========
Loss per common shares $ (0.039) $ (0.058) $ (0.088) $ (0.104)
============ =========== ============ ===========
Weighted average number of shares 12,297,266 7,625,500 12,229,558 7,625,500
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 10
CLEAN-X-PRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (484,602) $ (443,112) $(1,079,923) $ (795,370)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 83,681 43,515 167,365 92,220
Contributed services 30,000 60,000
Changes in assets and liabilities:
Due from affiliate (53,799) 35,227 (55,453) 255,671
Prepaid expenses (855) (12,654) (2,414) (18,556)
Deposits (19,165) 7,069 (21,666) (20,865)
Other 44,100 (26,816) (15) (32,155)
Accounts payable and accrued liabilities 349,972 260,952 638,275 399,216
Due to related parties 26,337 (200) 16,790 (10,000)
Deferred franchise fees (50,000) 168,500 (50,000)
----------- ----------- ----------- -----------
Total adjustments 430,271 287,093 911,382 675,531
----------- ----------- ----------- -----------
Net cash used in operating activities (54,332) (156,019) (168,541) (119,839)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiary (190,813)
Increase of organization costs (41,413)
Additions to furniture and equipment (210,114) (3,646) (255,219)
----------- ----------- ----------- -----------
Net cash used in investing activities (210,114) (235,872) (255,219)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Overdrafts 38,340 15,792 60,193 43,357
Increase of notes payable 44,855 98,300 129,636 147,300
Payments of notes payable (59,500) (2,250) (113,196) (77,066)
Issuance of common stock 26,563 254,290 314,559 254,291
----------- ----------- ----------- -----------
Net cash provided by financing activities 50,258 366,132 391,192 367,882
----------- ----------- ----------- -----------
TOTAL DECREASE IN CASH (4,074) -- (13,221) (7,176)
CASH AT BEGINNING OF PERIOD 4,074 -- 13,221 7,176
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 11
CLEAN-X-PRESS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
1. - BASICS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with the instruction to Form 10-QSB and do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These statements should be read in conjunction with the financial
statements and notes thereto included in the Registrant's Form 10-KSB for the
year ended September 30, 1995.
2. - NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of shares
outstanding.
3. - GOING CONCERN CONSIDERATIONS
As of March 31, 1996, the Company has an accumulated deficit of $4,583,419 and
its current liabilities exceed its current assets by $3,276,107. For the three
month period ended March 31, 1996, the Company incurred a net loss of $484,602.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements on a
continuing basis and to succeed in its future operation. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
Management has taken the following steps which it believes are sufficient to
provide the Company with the ability to meet its operating and financial
requirements and to continue in existence: the Company is in the process of
establishing franchise operations through the acquisition of a licensed
franchisor: the Company has entered into a contract to license 25 stores through
the broker. The Company has received an initial franchise fee of $65,000 per
store for 10 stores upon execution of the agreement; the Company's internal
projections anticipate generating cash receipts of approximately $3,120,000 in
fiscal year ending September 30, 1996 from the sale of new franchises;
additionally, the Company will earn a royalty fee of 5% of the net revenues of
the stores plus a management fee beginning in the seventh month after the stores
begin operations.
<PAGE> 12
3. GOING CONCERN CONSIDERATIONS (CONTINUED)
Additionally, the Company is planning a private offering memorandum for the sale
of convertible preferred stock. The Company anticipates raising up to $5,000,000
under this offering which the Company believes will be sufficient to meet its
operating and debt services requirements through fiscal year 1996.
4. PRO FORMA INFORMATION
The following condensed pro-forma information presents the results of operations
of the Company as if the acquisition of Ecopreneur has occurred on October 1,
1995 and 1994 respectively. the acquisition has been accounted for as a
purchase.
<TABLE>
<CAPTION>
Three month Three month
period ended period ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Revenue $ 151,504 $ 262,350
Net Loss $(484,602) $(443,112)
Loss per common share $ (.039) $ (.058)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 69013
<PP&E> 2935876
<DEPRECIATION> (416869)
<TOTAL-ASSETS> 2942655
<CURRENT-LIABILITIES> 3345120
<BONDS> 261340
0
0
<COMMON> 12368
<OTHER-SE> (773170)
<TOTAL-LIABILITY-AND-EQUITY> 2942655
<SALES> 0
<TOTAL-REVENUES> 151504
<CGS> 0
<TOTAL-COSTS> 260111
<OTHER-EXPENSES> 363218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12777
<INCOME-PRETAX> (484602)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (484602)
<EPS-PRIMARY> (0.039)
<EPS-DILUTED> 0
</TABLE>
