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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark one)
X
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-26433
ENVIRO-CLEAN OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0386415
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1023 Morales
San Antonio, Texas 78207
(Address of principal executive offices)
(210) 293-1232
(Issuer's telephone number, including area code)
Check whether the registrant (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
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No
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State the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date: The total number of shares of
Common Stock, par value $0.001 per share, outstanding as of August 13, 2001 was
5,580,710.
Transitional Small Business Disclosure Format (check one) Yes No X
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ENVIRO-CLEAN OF AMERICA, INC.
TABLE OF CONTENTS
<TABLE>
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets as of June 30,2001 (Unaudited) 2
and December 31, 2000 (Audited)...........................................................
Condensed Consolidated Statements of Income of Operations for the three and six months
ended June 30, 2001 and 2000 (Unaudited)................................................. 3
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001
and 2000 (Unaudited)..................................................................... 4
Notes to the Condensed Consolidated Financial Statements (Unaudited)..................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 12
Item 2. Changes in Securities..................................................................... 12
Item 3. Defaults Upon Senior Securities........................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders....................................... 12
Item 5. Other Information and Subsequent Events................................................... 12
Item 6. Exhibits and Reports on Form 8-K.......................................................... 13
SIGNATURE.......................................................................................... 14
INDEX TO EXHIBITS.................................................................................. 15
</TABLE>
1
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
2001 2000
----------- -----------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets
Cash................................................ $ 1,557,594 $ 2,618,297
Accounts receivable, net of allowance for
doubtful accounts of $63,418....................... 233,820 221,233
Inventory........................................... 384,922 424,411
Marketable securities-available for sale............ 6,002,400 1,395,000
Prepaid expenses and other current assets........... 25,446 36,490
Prepaid income taxes................................ - 1,004,438
Assets relating to discontinued operations.......... - 1,044,487
----------- -----------
Total current assets............................... 8,204,182 6,744,356
Fixed assets-less accumulated depreciation and
amortization of $683,555 and $670,774................ 106,149 72,661
Deferred income tax asset, net of valuation - -
allowance of $114,000................................
Equity investment..................................... 768,272 980,384
Note receivable....................................... 1,000,000 -
Goodwill.............................................. 2,239,883 3,674,179
----------- -----------
TOTAL ASSETS....................................... $12,318,486 $11,471,580
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses.............. $ 552,351 $ 603,304
Notes payable-related parties...................... 150,000 775,000
Current maturities of long-term debt............... 16,361 7,128
Liabilities relating to discontinued operations.... - 388,019
----------- -----------
Total current liabilities.......................... 718,712 1,773,451
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Long-term liabilities
Notes payable - related parties-subordinated...... 1,539,916 1,474,522
Notes payable-related parties..................... - 333,334
Long-term debt, less current maturities........... 43,043 19,413
----------- -----------
Total liabilities................................. 2,301,671 3,600,720
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Commitments
Redeemable preferred stock-$.001 par value;
authorized 5,000,000 shares 70,000 shares of
convertible stock designated as Series E
stock - $2.50 stated value; issued and
outstanding 70,000 shares......................... 175,000 175,000
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Stockholders' equity
Common stock-$.001 par value; authorized
20,000,000 shares; issued 6,578,454 and
7,271,752 ; outstanding 5,578,454 and
6,771,752......................................... 6,580 7,273
Less: Treasury stock-1,000,000 and 500,000 (950,000) (1,000,000)
shares at cost....................................
Additional paid-in capital......................... 11,147,830 11,559,043
Accumulated other comprehensive income............. 4,535,610 1,392,210
Accumulated deficit................................ (4,898,205) (4,422,666)
Common stock to be issued.......................... - 160,000
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Total stockholders' equity......................... 9,841,815 7,695,860
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $12,318,486 $11,471,580
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales.......................................... $1,173,611 $1,507,325 $2,316,542 $ 2,651,270
Cost of sales...................................... 685,021 949,829 1,342,490 1,474,132
---------- ---------- ---------- -----------
Gross profit................................ 488,590 557,496 974,052 1,177,138
---------- ---------- ---------- -----------
Operating expenses:
Salaries.................................... 328,001 338,223 607,067 653,503
Professional fees........................... 128,895 96,432 239,123 205,213
Depreciation and amortization............... 6,779 8,247 12,782 19,807
Amortization of goodwill.................... 106,946 222,303 213,865 444,606
Marketing................................... 3,920 7,425 5,121 19,697
Rent........................................ 84,356 85,946 170,570 174,976
Interest.................................... 111,028 202,698 215,085 414,450
Other....................................... 192,936 248,385 176,262 432,396
---------- ---------- ---------- -----------
Total operating expenses........................... 962,861 1,209,659 1,639,875 2,364,648
---------- ---------- ---------- -----------
Operating loss..................................... (474,271) (652,163) (665,823) (1,187,510)
Other income (expense)............................. (165,787) 61,504 (163,511) 6,844,317
---------- ---------- ---------- -----------
Income (loss) before income tax expense............ (640,058) (590,659) (829,334) 5,656,807
Income tax expense (benefit)...................... 12,888 (14,740) 16,330 1,632,664
---------- ---------- ---------- -----------
Net income (loss) from continuing operations....... (652,946) (575,919) (845,664) 4,024,143
---------- ---------- ---------- -----------
Income from operations of discontinued
Subsidiaries....................................... 109,268 510,386 164,551 740,681
Income from disposal of subsidiaries............... 208,200 - 208,200 -
---------- ---------- ---------- -----------
Net income from discontinued operations............ 317,468 510,386 372,751 740,681
---------- ---------- ---------- -----------
Net income (loss).................................. (335,478) (65,533) (472,913) 4,764,824
Preferred stock dividends.......................... (1,313) (53,287) (2,625) (120,671)
---------- ---------- ---------- -----------
Net income (loss) attributable to common
stockholders....................................... (336,791) (118,820) (475,538) 4,644,153
========== ========== ========== ===========
Income (loss) per share from continuing
operations........................................ $ (0.10) $ (0.11) $ (0.13) $ 0.72
========== ========== ========== ===========
Income per share from discontinued operations...... $ 0.05 $ 0.09 $ 0.06 $ 0.14
========== ========== ========== ===========
Income (loss) per share-basic and diluted.......... $ (0.05) $ (0.02) $ (0.07) $ 0.86
========== ========== ========== ===========
Weighted average number of shares outstanding...... 6,692,723 5,935,797 6,772,100 5,409,553
========== ========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
ENVIRO-CLEAN OF AMERICA, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited)
<TABLE>
<CAPTION>
2001 2000
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)....................................................... $ (472,913) $ 4,764,824
----------- -----------
Adjustments to reconcile net income or (loss) to net cash
used in operating activities:
Depreciation and amortization....................................... 31,358 75,387
Amortization of goodwill............................................ 213,865 444,606
Non-cash interest expense........................................... 65,394 119,766
Gain on sale of investment.......................................... - (6,747,000)
Gain on sale of subsidiaries........................................ (208,200) -
Shares returned for legal services.................................. (46,875) -
Loss on equity investment........................................... 212,112 -
Changes in assets and liabilities net of
effects of dispositions:
Increase in accounts receivable..................................... (12,587) (682,130)
(Increase) decrease in prepaid expenses and taxes................... 1,015,482 (44,592)
(Increase) decrease in inventories.................................. 39,489 (139,134)
Increase (decrease) in accounts payable and accrued expenses........ (50,953) 111,346
Increase in income taxes payable.................................... - 609,996
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Total adjustments...................................................... 1,259,085 (6,251,755)
----------- -----------
Net cash provided by (used in) operating activities.................... 786,172 (1,486,931)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes receivable.......................................... - 835,992
Purchase of property and equipment-net................................ (46,268) (47,789)
Investment in promissory note receivable.............................. (1,000,000) -
Investment in marketable securities................................... - (1,000,000)
Net proceeds on sale of investment.................................... - 6,750,000
Net proceed on sale of subsidiaries................................... 533,334 -
Sale of subsidiaries.................................................. (94,130) -
----------- -----------
Net cash provided by (used in) investing activities................... (607,064) 6,538,203
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock............................. - 1,876,475
Repayment of notes payable-related parties and other................... (925,471) (628,287)
Preferred stock redeemed............................................... - (4,580,000)
Purchase of treasury stock............................................. (311,715) -
Dividends paid......................................................... (2,625) (120,671)
----------- -----------
Net cash used in financing activities.................................. (1,239,811) (3,452,483)
----------- -----------
NET INCREASE (DECREASE) IN CASH............................................ (1,060,703) 1,598,789
CASH - BEGINNING........................................................... 2,618,297 1,833,478
----------- -----------
CASH - ENDING.............................................................. $ 1,557,594 $ 3,432,267
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest............................................................. $ 158,613 $ 363,205
=========== ===========
Income taxes......................................................... $ 23,430 $ 1,028,080
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fixed asset financing obligations incurred............................... $ 4,150 $ 31,566
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
ENVIRO-CLEAN OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
1. General
The accompanying financial statements, footnotes and discussions should be
read in conjunction with the financial statements, related footnotes and
discussions contained in the Company's Annual Report filed with Form 10-KSB for
the year ended December 31, 2000. The financial information contained herein is
unaudited. In the opinion of management, all adjustments necessary for a fair
presentation of such financial information have been included. All adjustments
are of a normal recurring nature.
The results of operations for the six months ended June 30, 2001 and 2000,
are not necessarily indicative of the results to be expected for the full year.
2. Principal Business Activity and Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
Enviro-Clean of America, Inc and its subsidiaries (collectively the "Company").
All significant intercompany balances and transactions have been eliminated in
consolidation.
The principal business activity of the Company is manufacturing and the
wholesale distribution of sanitary maintenance supplies and paper products.
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 raw materials, work in process and 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 declared,
but unpaid at June 30, 2001 totals $1,313. Preferred stock dividends declared
for six months totals $2,625. As of July 1, 2001, all dividends declared through
June 30, 2001 have been paid in full.
Earnings (loss) per share ("EPS") is computed by dividing net income or
loss by the weighted-average number of common shares outstanding for the period.
Both basic and diluted net income (loss) per share are the same, because the
effect of the Company's outstanding warrants and options is 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.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141)
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142.)
SFAS No. 141 addresses financial accounting and reporting for business
combinations. This statement requires the purchase method of accounting to be
used for all business combinations, and prohibits the pooling-of-interests
method of accounting. This statement is effective for all business combinations
initiated after June 30, 2001 and supercedes APB Opinion No. 16, "Business
Combinations" as well as FASB Statement of Financial Accounting Standards No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises".
SFAS No. 142 addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in financial statements
upon their acquisition. This statement requires goodwill to be periodically
reviewed for impairment rather than amortized, beginning on January 1, 2002.
SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets".
The Company is assessing the impact of adopting these standards on the
consolidated financial statements.
5
3. Acquisitions and dispositions
Effective June 29, 2001, the Company sold all of the outstanding capital
stock of Kandel & Son, Inc., it's New York-based wholly-owned subsidiary engaged
in the wholesale distribution of sanitary supplies, to Richard Kandel, the
Company's Chairman of the Board and Chief Executive Officer. The stock was sold
in exchange for 300,000 shares of IVAX Diagnostics, Inc common stock, par value
$.01, 1,000,000 shares of Enviro-Clean of America, Inc. common stock, par value
$.001, and the release of any obligation by the Company under Mr. Kandel's
employment agreement, dated December 1, 2000. As part of the transaction, Mr.
Kandel resigned as the Chairman of the Board and the Chief Executive Officer of
the Company.
The income from disposal of this subsidiary aggregating $1,154,540 has been
calculated as follows:
Selling price $1,464,000
Equity in assets sold 309,460
----------
Net income from disposal of subsidiary $1,154,540
----------
The operations of Kandel have been segregated from the consolidated income from
continuing operations.
Effective June 29, 2001, the Company sold all of the net assets of Superior
Chemical & Supply, Inc., it's Kentucky-based wholly-owned subsidiary engaged in
the distribution of cleaning supplies. The aggregate selling price of these
assets was $533,334.
The loss on disposal of this subsidiary aggregating $946,340 has been
calculated as follows:
Selling price $ 533,334
----------
Cash 4,092
Accounts receivable 258,586
Inventory 235,113
Property and equipment 48,460
Accounts payable (97,173)
Loans payable (26,519)
----------
Net assets sold 422,559
Excess of cost over fair value of assets
originally acquired (goodwill) 1,057,115
----------
Net assets upon disposal 1,479,674
----------
Net loss on disposal of subsidiary $ 946,340
----------
The operations of Superior have been segregated from the consolidated income
from continuing operations.
4. Investment in Affiliate
In 1999 and 2000, the Company and certain directors of the Company invested
in b2bstores.com, Inc., formerly a California based company which designed
Internet-based electronic commerce programs. During the three months ended March
31, 2000, b2bstores.com, Inc. repaid working capital loans from the Company
totaling $1,399,836 plus interest equal to 8% per annum. Subsequently, in March
2000, the
6
Company sold one-half of its investment, or 1,000,000 shares of b2bstores.com,
Inc. common stock, for net proceeds of $6,750,000 through a private sale to
ZERO.NET, Inc., a Delaware company.
On March 14, 2001, b2bstores.com, Inc. completed a merger with IVAX
Diagnostics, Inc., in which IVAX Diagnostics, Inc. merged with and into
b2bstores.com, Inc. In the merger, b2bstores.com, Inc. issued 20,000,000 shares
of common stock as merger consideration, changed its name to IVAX Diagnostics,
Inc., and commenced trading on the American Stock Exchange under the symbol
"IVD." Because of the dilutive effect on the Company's equity holdings, the
Company is no longer considered to be an affiliate of IVAX Diagnostics, Inc.
During the quarter ended March 31, 2000, the Company and the sellers of
June Supply Corporation ("June Supply"), adjusted the original purchase price of
June Supply, thereby reducing both the notes payable to the sellers and the
corresponding goodwill by $300,000 during the first quarter of 2000. The Company
subsequently disposed of June Supply.
5. Other investments
On May 31, 2000, the Company purchased a 30% equity stake in
Equip2move.com, Inc. ("Equip2move"), a New York-based start-up company which
hosts auctions on the Internet. In July of 2000 the Company provided a working
capital loan of $1,000,000 to Equip2move, which was ultimately converted into
1,000,000 shares of Equip2move's Series A Preferred Stock and a warrant to
purchase 1,000,000 shares of Equip2move common stock at an exercise price of
$1.00 (the "Warrant"). The Company's investment of $1,075,000 represented
approximately 35% of the total equity of Equip2move as of May 31, 2001. As part
of a stockholders agreement, the Company committed to provide additional
financing of $1,250,000 by February 1, 2001. The Company did not deliver the
additional proceeds by the scheduled deadline and began negotiations to relieve
the financing obligation.
The negotiations ended as of June 29, 2001, when the Company and Equip2move
agreed to a settlement to the relieve the Company of certain obligations owed to
Equip2move including; (i) complete and total relief of the remaining obligation
to produce $1,250,000 in additional financing for Equip2move by February 1,
2001, and (ii) termination of any remaining obligation by the Company to pay not
less than $150,000 and not more than $250,000 for the creation, design and
implementation of the Equip2move website through June 30, 2001. In exchange for
the relief of the future obligations, the Company reduced its equity in
Equip2move from its position of approximately 35% to 19.9%. This reduction was
completed through the Company's return of 2,607,675 shares of Series B common
stock of Equip2move and the Warrant. The Company holds 1,217,325 shares of
Series B common stock and 1,000,000 shares of Series A Preferred Stock as of
August 13, 2001.
On June 25, 2001, the Board authorized the investment of $1,000,000 in a
private placement offering by Excaliber I, L.L.C. ("Excaliber"), in which
Excaliber offered a minimum of $1,000,000 in promissory notes. Excaliber is in
the business of acquiring and servicing charged-off debt portfolios. The
President of the Managing Member of Excaliber, Melvin Schreiber, is also a
director of the Company. Mr. Schreiber did not participate in the Board's
discussion or vote on the investment.
6. Stockholders' Equity
In January 2000, the Company began a new private placement of a maximum of
137,500 Units at $8.00 per unit, each consisting of two shares of Common Stock
and one common stock purchase warrant. The warrants have an exercise price of
$4.25 and are exercisable for a three year period which began upon issuance. On
February 29, 2000, the Company sold an aggregate of 122,500 units to
approximately 18 accredited investors for aggregate proceeds to the Company of
$980,000. The Company closed the private placement on February 29, 2000.
7
In June 2000, the Company began an private offering targeted at the holders
of its 12.75% subordinated convertible notes (the "Noteholders"), in which the
Noteholders were offered the opportunity to convert their notes into shares of
Common Stock at a conversion price of $3.00 per share of Common Stock. As of
June 30, 2000, a total of $1,362,000 of debt was converted into 453,987 common
shares and $39 cash in lieu of fractional shares. In connection with the same
offering of Common Stock, an additional 281,500 shares of Common Stock were sold
for aggregate cash proceeds of $844,500.
During January 2001, a shareholder returned 25,000 shares of the Company's
Common Stock which was originally issued in consideration for services
performed, as part of a negotiated settlement.
During March 2001, the Company retired 829 shares of issued but unearned
Common Stock, representing shares that could no longer be earned pursuant to the
Superior Chemical & Supply, Inc. acquisition agreement.
From January through June 2001, the Company bought back 167,469 of its
common shares for an amount aggregating $311,715, pursuant to its Stock
Repurchase Program which was authorized by the Company's Board of Directors on
November 22, 2000.
7. Preferred Stock
In March, 2000, the Company redeemed all of its outstanding shares of
Series D Preferred Stock for a total of $1,600,000 plus unpaid accrued dividends
of $29,071.04 and initiated an offering in which the holders of the Series B
Cumulative Convertible Preferred Stock (the "Series B Stock"), were offered the
opportunity to convert or redeem their Series B Stock, plus accrued and unpaid
dividends.
As of April 1, 2000, 20,700 shares of the Series B Stock, plus accrued and
unpaid dividends were converted into 426,195 shares of Common Stock and the
remaining 4,800 outstanding shares of Series B Stock plus accrued and unpaid
dividends which were not converted, were redeemed for an aggregate of $492,000.
The conversion price for the Series B Stock was $5.00 per share of the Common
Stock and the redemption price was $100.00 per share of the Series B Stock. In
addition, on April 1, 2000, all of the outstanding shares of the Series A
Preferred Stock, were redeemed for a total of $2,500,000, plus unpaid accrued
dividends of $25,000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-QSB and the other filings with the Securities and
Exchange Commission made by the Company from time to time. The discussion of
the Company's liquidity, capital resources and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effect of any changes to the Company's operations. Accordingly,
actual results could differ materially from those projected in the forward-
looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the financial statements
contained elsewhere in the report.
General
8
In December 2000, the Board voted to discontinue its current business plan
of acquisition and consolidation of janitorial supply companies. The Board is
currently exploring strategic alternatives outside the janitorial industry which
could include a variety of business combinations, including, but not limited to,
divestitures, dispositions, acquisitions, mergers and strategic alliances. The
Company has formed a Mergers and Acquisitions Committee and engaged the services
of Harter Financial, Inc. to facilitate the search for an acceptable strategic
alternative. Additionally, the Company will explore alternative business plans
which may be incorporated into its current structure. In the interim, the
Company intends to continue to operate its remaining operating subsidiary,
Cleaning Ideas Corporation ("Cleaning Ideas"), monitor its equity investments
and passively invest in business opportunities at the Board's discretion.
Prior to the Board's decision to discontinue its consolidation strategy in
the janitorial industry, the Company's business model focused on acquiring
janitorial distribution companies which met the Board's defined criteria. Since
the implementation of the strategy in January 1999 until its discontinuance in
December 2000, the Company had acquired five operating subsidiaries in the
janitorial industry, including Kandel & Son, Inc. ("Kandel & Son"),
NISSCO/Sunline, Inc. ("NISSCO"), Cleaning Ideas, Superior Chemical & Supply,
Inc. ("Superior") and June Supply, Inc. ("June Supply") and had completed
substantial equity investments in two companies, b2bstores.com, Inc. (now known
as IVAX Diagnostics, Inc.) and equip2move.com Corporation. Subsequently, the
Company has disposed of four of its operating subsidiaries, including the
disposals of; (i) the sale of the assets of NISSCO on September 29, 2000, (ii)
the sale of the assets of June Supply on December 22, 2000, (iii) the sale of
all of the capital stock of Kandel & Son as of June 29, 2001, and (iv) the sale
of the assets of Superior Chemical & Supply, Inc., as of June 29, 2001.
Results of Operations
Results of operations for the six-month period ended June 30, 2001 and
2000:
The net sales decreased $334,728 for the six-month period ended June 30,
2001 ("2001") as compared to the six-month period ended June 30, 2000 ("2000")
from $2,651,270 to $2,316,542. The gross profit percentage decreased from 44%
for 2000 to 42% for 2001. This decrease is mostly attributable to emergence of
much stronger competition in 2001, therefore realizing lower sales and a lower
mark-up on the sale of product.
Operating expenses decreased from $2,364,648 for 2000 to $1,639,875 for
2001, approximately 31%. The majority of this decrease, approximately $725,000,
was due to the liquidation of debt, thereby reducing related interest expense
accordingly. Additionally, amortization of goodwill was recorded on acquisitions
of approximately $214,000 during 2001 and $445,000 during 2000. This reduction
is due to the disposal of four subsidiaries subsequent to June 30, 2000.
The Company had a net loss in 2001 of $472,913, as compared to net income
of $4,764,824, in 2000.
Liquidity and Capital Resources
For the six-month period ended June 30, 2001, the Company's cash flows from
operations was positive $786,172, as a result of a net loss of $472,913 and
adjustments to arrive at cash provided by operating activities of depreciation
and amortization and non-cash interest of $310,617, a decrease in inventory of
$39,489, a decrease in prepaid expenses and other current assets of $1,015,482,
a loss on an equity investment of $212,112, offset by a gain on sale of
subsidiaries of $208,200, shares returned for
9
legal services of $46,875, an increase in accounts receivable of $12,587 and a
decrease in accounts payable and accrued expenses of $50,953.
The Company has no material research and development expenditures nor does
it anticipate that it will have any such expenditures in the next twelve months.
Other than the possible disbursement for increased expenses for legal,
printing, accounting and other services associated with the search for a
strategic alternative, the Company does not expect its capital requirements to
increase in any substantive amount during the calendar year 2001. The Company's
future liquidity and capital funding requirements will depend on the extent to
which the Company is successful in determining and implementing a new direction
for the Company. The Company expects that capital requirements for calendar year
2001 will be met with the proceeds from the sale of an investment holding in
March 2000, the proceeds from a private placement offering in November 2000, the
income earned from an investment in a promissory note and the continued
operating revenues from the Company's subsidiary. Additionally the Company may
initiate a new private placement offering if the Board determines that
additional capital is needed.
Risk Associated with Change of Direction
No Assurance of Success of a Strategic Alternative.
The Board has determined that it is in the best interest of its
shareholders to discontinue the consolidation and acquisition strategy in the
sanitation and janitorial supply industry. Since the Company's formation, the
sanitation and janitorial supply industry is the only industry that management
of the Company has been involved in operating. There can be no assurance that
current management will be successful in locating a strategic alternative or
that such an alternative would benefit the Company or shareholder value. In
addition, if the Company were to begin operating in a different industry, there
could be no assurance that current management could operate in another industry
successfully or retain management that would successfully run the Company in
that industry.
Significant Charges and Expenses in a Business Combination
Although there is currently no specific business combination or alternative
that the Company has negotiated, business combinations and alternatives of the
type that the Company is seeking often involve significant charges and expenses
to conduct. These expenses include investment banking expenses, finders fees,
severance payments, legal and accounting fees, printing expenses, travel costs,
and other related charges. In addition, the Company could also incur additional
unanticipated expenses in connection with a business combination.
Possible Sale of Company Assets in a Business Combination
If the Company identifies and authorizes the negotiation of a business
combination or other strategic alternative in the future, the Company may, as
part of an executed agreement, be required to sell certain of its assets,
including its subsidiaries. The sale of the subsidiaries is a possible
requirement particularly if the chosen strategic partner is likely to change the
business direction of the Company or combine an existing, unrelated business
with the Company. If the disposal of the subsidiaries does become a provision in
an agreement, then, depending on market conditions, availability of willing
purchasers, and other market conditions, it is possible that the Company could
be forced to sell the subsidiaries at a price significantly lower than the price
paid by the Company during the acquisition of the Subsidiaries in order to
complete the transaction. Therefore, although the Company would aggressively
seek a favorable sale of the subsidiaries, there is a chance that the Company
could suffer overall losses on any dispositions of the subsidiaries. In
addition, other assets, such as certain investments by the Company, may also
need to be disposed of in order to accommodate a business combination or other
strategic
10
alternative. If that requirement is a part of an agreement, the Company may be
forced to sell these assets at a price significantly lower than the price paid
by the Company in order to complete the transaction.
11
PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no new legal proceedings to report in the second quarter
of 2001, and there have been no material developments in the information
reported in the Company's quarterly report on Form 10-QSB for the period ending
March 31, 2001.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders of the Company was held on June 13, 2001.
Richard Kandel, Randall K. Davis, Steven Etra, Gary C. Granoff and Melvin
Schreiber were elected as directors of the Company, each to hold office until
the next annual meeting of shareholders or until his successor has been elected
and qualified, subject to earlier resignation or removal. Additionally, the
shareholders ratified the appointment of Goldstein, Golub Kessler L.L.P. as
independent certified public accountants for the 2001 fiscal year. The results
of the voting at the annual shareholders meeting held on June 13, 2001 were as
follows:
<TABLE>
<CAPTION>
Proposal No. 1
(Election of Directors)
Company Nominee For Against Withheld
--------------- --- ------- --------
<S> <C> <C> <C>
Richard Kandel 3,868,603 - -
Randall K. Davis 3,865,103 - 3,500
Steven Etra 3,865,103 - 3,500
Gary C. Granoff 3,868,603 - -
Melvin Schreiber 3,868,603 - -
Proposal No. 2
(Ratification of Goldstein, Golub Kessler L.L.P.
as independent certified public accountants)
For Against Abstain Non-Votes
3,859,503 0 9,100 -
</TABLE>
ITEM 5. Other Information and Subsequent Events
None.
12
ITEM 6: Exhibits And Reports On Form 8-K
(a) Exhibits:
The exhibits, as listed on the Exhibit Index on Page 15, are hereby
incorporated by reference.
(b) Reports on Form 8-K:
None.
13
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, as
amended, the Issuer has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
August 13, 2001
Enviro-Clean of America, Inc.
By: /s/ Randall K. Davis
--------------------------------------
Randall K. Davis, Chief Executive Officer
By: /s/ Jan Pasternack
--------------------------------------
Jan Pasternack, Chief Financial Officer
14
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
2(i) Asset Purchase Agreement, by and between ebuyxpress.com L.L.C.,
NISSCO/Sunline, Inc. and Enviro-Clean of America, Inc., dated
September 29, 2000 (Incorporated by reference to the Company's
Report on Form 8-K filed with the SEC on October 13, 2000).
2(ii) Asset Purchase Agreement, by and between York Supply, Ltd., June
Supply Corp., and Enviro-Clean of America, Inc. dated December
22, 2000 (Incorporated by reference to the Company's Report on
Form 8-K filed with the SEC on December 28, 2000).
2(iii) Asset Purchase Agreement, by and between Superior One Source,
Inc., Superior Chemical & Supply, Inc., and Enviro-Clean of
America, Inc., dated June 29, 2001. (Incorporated by reference to
the Company's Report on Form 8-K filed with the SEC on July 20,
2001).
2(iv) Stock Purchase Agreement between Richard Kandel, Kandel & Son,
Inc. and Enviro-Clean of America, Inc., dated June 29, 2001.
(Incorporated by reference to the Company's Report on Form 8-K
filed with the SEC on July 20, 2001).
3(i) Articles of Incorporation of the Company (Incorporated by
reference to the Company's Form 10-SB filed with the SEC on June
18, 1999).
3(ii) By-Laws of the Company (Incorporated by reference to the
Company's Form 10-SB filed with the SEC on June 18, 1999).
4(i) Certificate of Designation for the Company's Series A Stock
(Incorporated by reference to the Company's Form 10-SB filed with
the SEC on June 18, 1999).
4(ii) Certificate of Designation for the Company's Series E Stock
(Incorporated by reference to the Company's Form 10-SB filed with
the SEC on June 18, 1999).
4(iii) Certificate of Designation for the Company's Series D Preferred
Stock (Incorporated by reference to the Company's Report on Form
8-K filed with the SEC on September 3, 1999).
4(iv) Certificate of Amendment to the Certificate of Designation for
the Company's Series A Stock (Incorporated by reference to the
Company's Report on Form 10-SB/A filed with the SEC on October
22, 1999).
4(v) Certificate of Designation for the Company's Series B Stock.
(Incorporated by reference to the Company's Report on Form 10-
SB/A filed with the SEC on December 16, 1999).
4(vi) Form of 12.75% Subordinate Note (Incorporated by reference to the
Company's Report on Form 10-SB/A filed with the SEC on October
22, 1999).
15
4(vii) Form of the Warrant Certificate - June 1999 (Incorporated by
reference to the Company's Report on Form 10-SB/A filed with the
SEC on October 22, 1999).
4(viii) Form of the Warrant Certificate - December 1999 (Incorporated by
reference to the Company's Report on Form 10-QSB filed with the
SEC on June 15, 2000).
4(ix) Form of the Warrant Certificate - February 2000 (Incorporated by
reference to the Company's Report on Form 10-QSB filed with the
SEC on June 15, 2000).
10(i)+ Settlement Agreement by and between the Company and
Equip2move,.com Corporation, dated June 30, 2001.
10(ii)+ Subscription Agreement with Excaliber I, L.L.C., dated June 26,
2001.
10(iii)+ Promissory Note, dated July 20, 2001 between Excaliber I, L.L.C.
as borrower, and Enviro-Clean of America, Inc. as Payee.
_______________________________
+ Filed herewith.
16
Exhibit 10(i)
SETTLEMENT AGREEMENT
--------------------
This Settlement Agreement (the "Agreement") is made effective as of the
30th day of June, 2001 (the "Effective Date") by and between equip2move.com
Corporation, a Delaware corporation ("Equip2move"), the undersigned stockholders
of Equip2move (the "Stockholders") and Enviro-Clean of America, Inc., a Nevada
corporation ("Enviro-Clean").
RECITALS:
WHEREAS, Enviro-Clean subscribed to Equip2move to purchase 300,000
shares of Equip2move's Class B common stock, par value $0.001 ("Class B
Common") in exchange for $75,000 in cash, 70,000 shares of b2bstores.com,
Inc. common stock (the "b2b Shares"), and an obligation to provide between
$150,000 and $250,000 in funding to Equip2move for the purpose of creating,
designing and implementing the functionality of Equip2move's website (the
"Development Costs"), as described in that certain subscription agreement,
dated May 31, 2000, executed by Enviro-Clean and acknowledged by Equip2move
(the "Subscription Agreement"); and
WHEREAS, Enviro-Clean was a party to that certain stockholders'
agreement, dated May 31, 2000 (the "Stockholders' Agreement"), and the
amendment to the Stockholders' Agreement, dated July 28, 2000 (the
"Amendment", collectively the Stockholders' Agreement and Amendment are
sometimes herein referred to as the "Stockholder Documents") each by and
between Koster Industries, Inc., Enviro-Clean, Corporate Assets
International, Inc., Prestige Equipment Corporation, Rosen Systems, Inc.,
Rodney Schultz, Jerry Root and Equip2move in which, under Section 5.2 of
the Amendment, Enviro-Clean agreed to provide Equip2move with proceeds of
$1.0 million in exchange for a convertible promissory note (the "Note") and
to provide financing to Equip2move in the aggregate amount of $2.25 million
by February 1, 2001 (the "Additional Funding"); and
WHEREAS, on November 30, 2000, Equip2move authorized a stock dividend
of 12.75 shares for every outstanding share of all classes of Common Stock,
effectively increasing Enviro-Clean's number of outstanding shares of the
Class B Common to 3,825,000 shares; and
WHEREAS, in December of 2000, Enviro-Clean converted the Note into
equity by converting the $1,000,000 principal amount of the Note into
1,000,000 shares of Series A Convertible Preferred Stock (the "Series A
Stock") and 1,000,000 common stock warrants, exercisable at $1.00 per share
of Common Stock (the "Warrants"), partially satisfying the Additional
Funding obligation and reducing the remaining Additional Funding
obligation, due February 1, 2001, from $2.25 million to $1.25 million; and
WHEREAS, Enviro-Clean has not delivered the remaining Additional
Funding obligation by February 1, 2001 and has determined it to be in their
best interest to reduce their equity stake in Equip2move and its
representation on the Equip2move Board of Directors and release Equip2move
and the Stockholders of certain claims Enviro-Clean may have against
Equip2move in exchange for the termination and release of the remaining
Additional Funding obligation of $1.25 million and Development Costs
obligation; and
WHEREAS, Equip2move desires to relieve Enviro-Clean of the Additional
Funding obligation of $1.25 million and Development Cost obligations and
the Stockholders desire to relieve Enviro-Clean of the Additional Funding
obligation of $1.25 million and both Equip2move and the Stockholders desire
to release Enviro-Clean of certain claims Equip2move and the Stockholders
may have against Enviro-Clean in exchange for a return of certain
securities of Equip2move held by Enviro-Clean and other consideration.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Release of the Additional Funding Obligation. Upon the delivery of the
--------------------------------------------
Class B Common and Warrants described in paragraphs 4 and 5 below, Equip2move
and the Stockholders release Enviro-Clean of any further obligation to provide
the Additional Funding as described in the Stockholder Documents, which
currently totals $1.25 million in the aggregate.
2. Release of the Development Cost Obligation. Upon the delivery of the
------------------------------------------
Class B Common and Warrants described in paragraphs 4 and 5 below, Equip2move
releases Enviro-Clean of any further obligation to provide Development Costs as
of June 30, 2001 (the "Development Cut-Off Date"). Any charges incurred with
respect to the Development Cost obligation delivered to Enviro-Clean after the
Development Cut-Off Date will not be paid by Enviro-Clean and any rights to such
amounts will be waived by Equip2move.
3. Return of Securities to Equip2move, Board Resignations, etc. In
------------------------------------------------------------
exchange for the release of the Additional Funding and Development Costs
obligations and a release of certain claims by Equip2move, Enviro-Clean agrees
(i) to return the 1,000,000 Warrants and 2,607,675 shares of Class B Common to
Equip2move, (ii) to relinquish any and all right to appoint two (2) members to
the Equip2move Board of Directors as provided for in Section 2.1 of the
Stockholders' Agreement and to cause its two current designees to the Board,
Randall K. Davis and Richard Kandel, to tender their resignations substantially
in the form attached hereto as Exhibit A, and (iii) to amend the Certificate of
Designation of the Series A Stock substantially in the form attached hereto as
Exhibit B.
4. Delivery of Securities. Upon execution of this Agreement, Enviro-
----------------------
Clean shall deliver to Equip2move stock certificates for the 2,607,675 shares
of Class B Common either duly endorsed to Equip2move by Enviro-Clean or
accompanied by appropriate stock transfer powers duly executed. If the
certificated shares of the Class B Common have not been previously
2
delivered to Enviro-Clean, then Enviro-Clean shall deliver such requested
documentation releasing the rights of Enviro-Clean to receive such shares of the
returned Class B Common shares. A new share certificate for 1,217,325 shares of
Class B Common will be issued to Enviro-Clean representing the balance of the
Class B Common it owns.
5. Delivery of Warrants. Upon execution of this Agreement, Enviro-Clean
--------------------
shall deliver to Equip2move the Warrants for cancellation or such documentation
releasing the rights of Enviro-Clean to receive the Warrants.
6. Release by Equip2move and the Stockholders. Upon the delivery of the
------------------------------------------
Class B Common and Warrants described in paragraphs 4 and 5 below, Equip2move
hereby releases and discharges Enviro-Clean and its officers, directors,
employees, agents, shareholders and affiliated companies, and their respective
successors, heirs and assigns (hereinafter the "Enviro-Clean Releasees") from
any and all claims, demands, damages, actions, and causes of action whatsoever,
known or unknown, whether in law or in equity, which Equip2move has or may have
in any capacity against Enviro-Clean Releasees relating in any way to the
Development Costs or the Additional Funding and the Stockholders hereby release
and discharge the Enviro-Clean Releasees from any and all claims, demands,
damages, actions, and causes of action whatsoever, known or unknown, whether in
law or in equity, which the Stockholders have or may have in any capacity
against Enviro-Clean Releasees relating in any way to the Additional Funding;
provided, however, the foregoing will in no way impair or otherwise limit any
other rights, claims, demands, damages, actions, and causes of actions relating
to any agreement still in effect pertaining to the remaining interests of
Equip2move held by Enviro-Clean. Equip2move hereby further represents and
warrants to Enviro-Clean that it has not assigned or otherwise disposed of any
of his rights, title or interest in or to any of the above claims or causes of
action hereby released.
7. Release by Enviro-Clean. Enviro-Clean hereby releases and discharges
-----------------------
Equip2move and its officers, directors, employees, agents, shareholders and
affiliated companies, and their respective successors, heirs and assigns and the
Stockholders (hereinafter the "Equip2move Releasees") from any and all claims,
demands, damages, actions, and causes of action whatsoever, known or unknown,
whether in law or in equity, which Enviro-Clean has or may have in any capacity
against Equip2move Releasees relating in any way to the returned Series B Common
Shares and Warrants and Enviro-Clean's rights relating to such securities;
provided, however, the foregoing will in no way impair or otherwise limit any
other rights, claims, demands, damages, actions, and causes of action relating
to any agreement still in effect pertaining to the remaining interests of
Equip2move held by Enviro-Clean. Enviro-Clean hereby further represents and
warrants to Equip2move that it has not assigned or otherwise disposed of any of
its rights, title or interest in or to any of the above claims or causes of
action hereby released.
8. Representation of Counsel. The parties hereto, jointly and
-------------------------
individually, hereby acknowledge that they have been represented by counsel in
connection with the giving and execution of this Agreement; that they understand
the meaning of this document; that they intend to be legally bound by all of the
terms set forth herein; and that they have received consideration deemed by them
and their counsel to be sufficient for the giving and execution of this
document.
3
9. Consent and Waiver of Equip2move. Equip2move acknowledges that they
--------------------------------
have executed and agreed to a Consent to Representation and Waiver of Conflict
of Interest, dated April 23, 2001, in which, in regard to this Settlement,
Equip2move consents to the representation of Enviro-Clean by the law firm of
Akin, Gump, Strauss, Hauer & Feld L.L.P., which also represents Equip2move.
10. Miscellaneous. No amendment, modification, or discharge of this
-------------
Agreement, and no waiver hereunder, shall be valid or binding unless set forth
in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge, or waiver is sought. No delay or failure at
any time on the part of either party in exercising any right, power, or
privilege under this Agreement, or in enforcing any provision of the Agreement,
shall impair any such right, power, or privilege, or be construed as a waiver of
such provision, or be construed as a waiver of any default or as any
acquiescence therein, or shall affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
This Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof, and supersedes all prior oral or written
agreements, commitments, or understandings with respect to such matters. This
Agreement or any interest herein may not be assigned by either party in whole or
in part without the prior written approval of the other party. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective permitted heirs, successors and assigns. The section headings
contained herein are for the purposes of convenience only and are not intended
to define or limit the contents of said sections. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of
Delaware. This Agreement may be executed in separate counterparts each of which
shall be an original and all of which taken together shall constitute one and
the same agreement. If any covenants in any provision of this Agreement or any
part thereof is hereafter construed to be invalid or unenforceable , the same
will not affect the remainder of the covenant or covenants which shall be given
full effect without regard to the invalid or unenforceable provision. Any
public announcement or disclosure with regard to this Agreement and the
transactions contemplated herein, other than disclosure contained in filings
required by the Securities and Exchange Commission or otherwise required by law,
shall be kept confidential by the parties unless mutually agreed to in writing
prior to such dissemination.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above-written.
ENVIRO-CLEAN OF AMERICA, INC.
By: /s/ Randall K. Davis
--------------------------
Name: Randall K. Davis
--------------------------
Title: Chief Executive Officer
--------------------------
4
EQUIP2MOVE.COM CORPORATION
By: /s/ Russell Koster
----------------------------
Name: Russell Koster
----------------------------
Title: Chief Executive Officer
----------------------------
STOCKHOLDERS:
KOSTER INDUSTRIES INC.
By: /s/ Russell Koster
----------------------------
Name: Russell Koster
----------------------------
Title: President
----------------------------
CORPORATE ASSETS INTERNATIONAL INC.
By: /s/ Ron Haas
----------------------------
Name: Ron Haas
----------------------------
Title: President
PRESTIGE EQUIPMENT CORPORATION
By: /s/ Terry Lashin
----------------------------
Name: Terry Lashin
----------------------------
Title: President
----------------------------
ROSEN SYSTEMS, INC.
By: /s/ Michael D. Rosen
----------------------------
Name: Michael D. Rosen
----------------------------
Title: President
----------------------------
5
/s/ Rodney Schultz
----------------------------
RODNEY SCHULTZ
/s/ Jerry Root
----------------------------
JERRY ROOT
6
Exhibit 10(ii)
SUBSCRIPTION AGREEMENT
EXCALIBUR, I, LLC
(01-11)
1. The undersigned ("Subscriber") hereby subscribes for the dollar amount
(the "Investment") set forth below, each Investment to have a purchase price
equal to Subscriber's pro rata share of the total participation (the
"Participation") in the Loan Pool 01-11, Excalibur I, LLC. Each Investment shall
consist of the Subscriber's Participation in the Loan Pool for which a note in
the amount of the Investment shall be issued. The Subscriber shall receive
distributions on a quarterly basis until the Subscriber receives 150 percent of
the amount of the Investment or notice that collections from the defaulted upon
accounts receivable have been exhausted, and no other distributions will be paid
to Note holders, whichever event occurs first.
2. The Company is under no obligation to accept any Subscription
Agreement. In the event that the Company elects not to accept the Subscription
Agreement, it shall promptly notify Subscriber. This Agreement shall thereupon
have no further force and effect, and the subscription funds actually paid shall
be promptly returned to Subscriber, without interest thereon.
3. Subscriber hereby represents, warrants, and convenants as follows:
a. Subscriber meets one or more of the following:
i. Suscriber had annual income during each of the two most
recent years in excess of $200,000 and reasonably expects
income in excess of $200,000 in the current year; or
ii. Subscriber had joint income with spouse in excess of
$300,000 during each of the two most recent years and
reasonably expects joint income in excess of $300,000 in the
current year; or
iii. Subscriber presently has an individual or joint total net
worth (together with spouse) in excess of $1,000,000; or
iv. Subscriber is a director or executive officer of the
Company;
v. Subscriber is an entity in which all the equity owners are
accredited investors under any one of Subparagraphs (i),
(ii), (iii), (iv); or
vi. Subscriber is a bank as defined in Section 3(a)(2) of the
Securities Act of 1933 (the "Act") or a savings and loan
association or other institution as defined in Section
3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant
to Section 15 of the
Securities Exchange Act of 1934; an insurance company as
defined in Section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48)
of that Act; a Small Business Investment Company under
Section 301(c) or (d) of the Small Business Investment Act
of 1958; a plan established and maintained by a state, its
political subdivisions, or an agency or instrumentality of a
state or its political subdivision, for the benefit of its
employees if such plan has total assets in excess of
$5,000,000; and employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the
investment decision is made by a plan fiduciary, as defined
in Section 3(21) of such acts, which is either a bank
savings and loan association, insurance company, or
registered investment adviser of the employee benefit plan
which has assets in excess of $5,000,000, or is a self-
directed plan, with investment decisions made solely by
persons that are accredited investors under any one of
Subparagraphs (i), (ii), and (iv); or
vii. Subscriber is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers
Act of 1940; or
viii. Subscriber is an organization described in Section 50(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or
similar business trust, or partnership, not formed for the
specific purpose of acquiring the Investments offered, with
total assets in excess of $5,000,000; or
ii. Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Investments offered, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of
the act.
b. Subscriber is acquiring the Investment (i) for his own account and
not for the interest of any other; and (ii) for Investment only
and not with the intention of, or a view toward, the resale or
distribution thereof, and will not resell or otherwise transfer
the Investment unless pursuant to an effective registration
statement or based upon an exemption from registration, such
exemption is available on the opinion of counsel satisfactory to
Company's counsel in the opinion of Company's counsel; subscriber
further understands that holding the Investment for any predefined
period of
2
time (holding for a defined sale, holding for the capital gains
period, etc.) does not constitute holding for Investment or an
agreement to hold the Investment for Investment;
c. Subscriber understands that the company is not obligated to register
the Investment under the Act to comply with the requirements for any
exemption which might otherwise be available or to supply the
undersigned with any information necessary to enable him to make
routine sales of his Investment;
d. Subscriber possesses the knowledge and experience in financial and
business matters to be able to evaluate the merits and risks of this
Investment;
e. Subscriber is able to bear the economic risk of the Investment and is
aware that no market for the Investment now exists, and such markets
may not exist or may be limited in the future at such time as the
Investment may be sold under applicable federal and state securities
laws;
f. Subscriber realizes that since the Investment cannot be readily
transferred, he, she, or it may not readily liquidate the Investment
and must not purchase the Investment unless he has sufficient liquid
assets to assure himself that such purchase will cause him no undue
financial difficulties. Subscriber realizes further that the
Investment may not be sold, transferred, or otherwise disposed of
without registration under the Act or pursuant to an exemption from
registration under the Act. Subscriber acknowledges that he has no
rights to require registration of his Investment or component parts of
the Investments under the Act;
g. Subscriber realizes and acknowledges that all the books and records of
the Company have been made available for inspection prior to the
execution and delivery of this Agreement; and
h. Subscriber agrees to cooperate with the Company in correcting
clerical errors made on any documentation relating to the purchase of
the Investment.
4. All checks should be made payable to "Melvin Schreiber, Special
Account."
5. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York and shall bind and inure to the benefit of
heirs, executors, administrators, legal representatives, successors, and assigns
of the Subscriber and the Company.
3
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
25th day of June 2001.
Dollar amount of Investment Subscribed for: $1,000,000.
Subscriber's Signature:
ENVIRO-Clean OF AMERICA, INC.
By: /s/ Randall K. Davis
Randall Davis, Chief Executive Officer
Subscriber's Name
(Print): Enviro-Clean of America, Inc.
4
Exhibit 10(iii)
PROMISSORY NOTE -- 01-11
------------------------
$1,000,000
July 20, 2001
FOR VALUE RECEIVED, Excalibur I, LLC, a Limited Liability Company, duly
organized under the laws of the State of New York and having its usual business
address at 3000 Marcus Avenue, Suite IW5, Lake Success, New York, 10042
(hereinafter called "Borrower"), hereby promises to pay to the order of
ENVIRO-CLEAN OF AMERICA, INC., (hereinafter called "Payee") the sum of
$1,000,000 ("advanced sum") plus the amounts more fully stated in a certain
Private Placement Memorandum dated July 20, 2001, the terms of which are
incorporated herein by reference, which shall not exceed but may be less than
the amount of $500,000. Payments shall be paid in quarterly installments until
the Payee receives 150 percent of the advanced sum,/1/ or the time collections
derived from the defaulted-upon accounts receivable have been exhausted,
whichever event occurs first.
Payments shall fluctuate each quarter based upon the Borrower's net
revenues.
This note may be prepaid in full or in part, in advance of maturity,
without a penalty.
The Borrower hereby waives presentment, protest, or further demand or
notice of any kind otherwise required in connection with the payment of
principal or interest on this note.
All rights and obligations hereunder shall be governed by the laws of the
State of New York, and this Note shall be deemed to be under seal.
All the covenants, agreements, and terms contained in this Note shall bind
Borrower and Borrower's successors and assigns.
This Promissory Note may not be assigned by the Payee.
IN WITNESS WHEREOF, the Borrower has executed this Note the day and year
first above written.
EXCALIBUR I, LLC
By: Anlyn Associates, Inc., Member
By: /s/ Melvin Schreiber
------------------------------
Melvin Schreiber, President
--------------------
/1/ For tax purposes, any money received by Payee over and above the advanced
sum shall be treated as interest.