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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
COMMISSION FILE NO. 000-21325
SYSTEMONE TECHNOLOGIES INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0226813
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8305 N.W. 27TH STREET, SUITE 107
MIAMI, FLORIDA 33122
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(305) 593-8015
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
MANSUR INDUSTRIES INC.
----------------------
(FORMER NAME)
CHECK WHETHER THE REGISTRANT (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
THE REGISTRANT HAD AN AGGREGATE OF 4,742,923 SHARES OF ITS COMMON STOCK, PAR
VALUE $.001 PER SHARE, OUTSTANDING AS OF THE CLOSE OF BUSINESS ON
MAY 14, 2001.
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SYSTEMONE TECHNOLOGIES INC.
INDEX TO FORM 10-QSB
QUARTER ENDED MARCH 31, 2001
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited).............................. 3
Condensed Balance Sheets-
As of March 31, 2001 and December 31, 2000.............................. 3
Condensed Statements of Operations-
For the three months ended March 31, 2001 and 2000..................... 4
Condensed Statements of Cash Flows- For the three
months ended March 31, 2001 and 2000.................................... 5
Notes to Condensed Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 12
Item 2. Changes in Securities and Use of Proceeds................................ 12
Item 3. Defaults Upon Senior Securities.......................................... 12
Item 4. Submission of Matters to a Vote of Security Holders...................... 12
Item 5. Other Information........................................................ 12
Item 6. Exhibits and Reports on Form 8-K......................................... 12
Signatures............................................................... 13
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SYSTEMONE TECHNOLOGIES INC.
CONDENSED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(Unaudited)
(In thousands, except share and per share data)
March 31, December 31,
2001 2000
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 67 $ 488
Accounts receivable, net 2,278 1,568
Inventory 978 1,873
Other assets 233 124
-------- --------
Total current assets 3,556 4,053
Property and equipment, net 2,005 2,229
Other assets 592 667
-------- --------
Total assets $ 6,153 $ 6,949
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 2,337 $ 3,101
Restructuring accrual 108 301
Warranty accrual 960 1,030
Deferred revenue 131 189
Current installments of long-term debt and obligations
under capital leases 4,588 281
-------- --------
Total current liabilities 8,124 4,902
-------- --------
Long-term debt 22,337 25,364
Other long-term liabilities 693 943
-------- --------
Total liabilities 31,154 31,209
-------- --------
Redeemable convertible preferred stock, $1.00 par value per
Share. Authorized 1,500,000 shares, 158,582 issued and
outstanding (155,424 in 2000), at redemption value 15,858 15,542
Less unamortized discount (1,557) (1,680)
-------- --------
Net redeemable convertible preferred stock 14,301 13,862
-------- --------
Stockholders' deficit:
Common stock, $0.001 par value per share. Authorized
25,000,000 shares, issued and outstanding 4,742,923 5 5
Additional paid-in capital 19,129 19,129
Accumulated deficit (58,436) (57,256)
-------- --------
Total stockholders' deficit (39,302) (38,122)
-------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders'
deficit $ 6,153 $ 6,949
======== ========
See accompanying notes to condensed financial statements.
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SYSTEMONE TECHNOLOGIES INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(In thousands, except share and per share data)
March 31, March 31,
2001 2000
----------- -----------
Revenue $ 4,396 $ 4,286
Costs of goods sold 2,912 1,772
----------- -----------
Gross profit 1,484 2,514
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Operating expenses:
Selling, general and administrative 1,025 5,811
Research and development 54 166
----------- -----------
Total operating expenses 1,079 5,977
----------- -----------
Profit (loss) from operations 405 (3,463)
----------- -----------
Interest expense, net (727) (524)
Amortization of note discount (419)
----------- -----------
Total interest (1,146) (524)
----------- -----------
Net loss (741) (3,987)
----------- -----------
Dividends and accretion of discount on redeemable
convertible preferred stock (439) (256)
----------- -----------
Net loss to common shares $ (1,180) $ (4,243)
=========== ===========
Basic and diluted net loss per common share $ (.25) $ (.89)
=========== ===========
Weighted average shares outstanding 4,742,923 4,742,923
=========== ===========
See accompanying notes to condensed financial statements.
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SYSTEMONE TECHNOLOGIES INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(In thousands)
March 31, March 31,
2001 2000
--------- ---------
Cash flows used in operating activities:
Net loss $ (741) $(3,987)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 634 191
Payment-in-kind of interest on convertible debt 528 371
Provision for obsolete inventory and doubtful accounts (40)
Changes in operating assets and liabilities:
Accounts receivable (699) 916
Inventories 924 (180)
Other assets (109) 44
Accounts payable and accrued expenses (764) 1,267
Restructuring accrual (193)
Warranty accrual (320)
Deferred revenue (58) 51
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Net cash used in operating activities (838) (1,327)
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Cash flows provided by investing activities:
Purchase of equipment (8)
Proceeds from sale of equipment 92
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Net cash provided by investing activities 84 --
------- -------
Cash flows provided by financing activities:
Proceeds from long-term debt 400 851
Repayments of capital lease obligations (67) (76)
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Net cash provided by financing activities 333 775
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Net decrease in cash and cash equivalents (421) (552)
Cash and cash equivalents at beginning of period 488 912
------- -------
Cash and cash equivalents at end of period $ 67 $ 360
======= =======
See accompanying notes to condensed financial statements.
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SYSTEMONE TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2001
AND DECEMBER 31, 2000
(UNAUDITED)
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING
PRONOUNCEMENTS
The Company designs, manufactures and sells a full line of patented,
self-contained, recycling industrial parts washers, marketed as the SystemOne(R)
Washers (the "SystemOne(R) Washers"), for use in the automotive, aviation,
marine and general industrial repair markets. The Company has been awarded
eleven patents for its products, which incorporate innovative, proprietary
resource recovery and waste minimization technologies to distill contaminated
solvent and yield pure solvent and a by-product comparable to used motor oil.
The SystemOne(R) Washer integrates a distillation and recovery process which
allows the solvent to be used, treated and re-used on demand, without requiring
off-site processing. The Company was incorporated in November 1990, commenced
the sale of SystemOne(R) Washers in July 1996 and has sold approximately 22,600
total SystemOne(R) units through March 31, 2001. During 2000, the Company's
operating subsidiary was merged with and into the Company and the Company
changed its name to SystemOne Technologies Inc.
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB/A as filed with the Securities and Exchange Commission for the year ended
December 31, 2000.
Management acknowledges its responsibility for the preparation of the
accompanying interim financial statements which reflect all adjustments
considered necessary, in the opinion of management, for a fair statement of the
results of interim periods presented. The results of operations for the interim
periods are not necessarily indicative of the results of operations for the
entire year. Where appropriate, certain amounts have been reclassified to
conform with the 2001 presentation.
(2) LIQUIDITY
During the first quarter of 2001, the Company commenced shipping machines to
Safety-Kleen under the terms of the Exclusive Marketing Agreement. Safety-Kleen
has also commenced paying the Company according to the terms of the agreement.
Assuming Safety-Kleen's continued performance, the Company currently anticipates
that for fiscal year 2001 it will not require additional equity or debt
financing in excess of that available under the Revolving Credit Loan Agreement,
although there can be no assurance. However, if none of the outstanding
convertible debt and convertible preferred stock is converted to common stock,
significant amounts of cash would be required commencing in 2002 to repay
long-term debt and the redeemable preferred stock. As of March 31, 2002,
approximately $52,209,000 of debt and redeemable preferred stock would have to
be repaid commencing in 2002. The Company believes that it may need to obtain
new debt or equity to fund all or part of the required payments. There is no
certainty that the Company would be able to obtain the required funds on
acceptable terms.
(3) REVOLVING CREDIT LOAN AGREEMENT
The Company borrowed an additional $400,000 in the first quarter 2001 on its
Revolving Credit Loan Agreement (the "Senior Revolver") which provides the
Company with a $5 million revolving line of credit. Pursuant to the Senior
Revolver, the Company may borrow twice a month up to the Advance Limit. The
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Advance Limit is the lesser of $5,000,000 or the sum of the Advance Supplement
plus an amount based on the Company's accounts receivable and inventory. The
Advance Supplement was $3,000,000 through March 31, 2001 and is $2,500,000 for
the period April 1, 2001 until May 30, 2003. As of March 31, 2001, there was
approximately $400,000 credit available on the Senior Revolver.
(4) SUBSEQUENT EVENTS
The Company announced on May 8, 2001 that the Company's securities were delisted
from the Nasdaq Stock Market effective with the open of business that day. The
Company's securities will continue to be quoted on the OTC Electronic Bulletin
Board under its current symbol STEK.
(5) NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998 the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), as amended, which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company adopted SFAS No. 133, as amended, during the three months ended
March 31, 2001 and there was no material impact on the Company's financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
Financial Statements, including the notes thereto, contained elsewhere in this
10-QSB and the Company's Form 10-KSB/A filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 2000.
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GENERAL AND RECENT DEVELOPMENTS
The Company was incorporated in November 1990 and, as a development stage
company, devoted substantially all of its resources to research and development
programs related to its full line of self contained, recycling industrial parts
washers until June 1996. The Company commenced its planned principal operations
in July 1996. The Company began to generate significant revenue from product
sales in 1997 and since its inception has had only one quarter of profitability.
The Company's operating expenses increased significantly between 1997 and 2000
in connection with the development of a direct marketing and distribution
organization, including the establishment of regional distribution centers and a
service fleet. Unfortunately, despite the economic, technological and
environmental advantages offered by the Company's SystemOne(R) products, the
market demand for a capital purchase or capital lease of parts washer equipment
proved to be less than projected as there remained a strong preference in the
parts washer market for the traditional month-to-month service charge or
equipment rental. Consequently, revenues did not increase commensurately with
the expenses of a direct marketing and distribution organization and the Company
did not have the required large amounts of capital to finance rental inventory
necessary to support a month-to-month rental program.
Commencing in the first quarter, Safety-Kleen Systems, Inc., a wholly-owned
subsidiary of Safety-Kleen Corp. (collectively, "Safety-Kleen") became the
exclusive distributor for SystemOne(R) parts washers in the United States,
Puerto Rico, Canada and Mexico under the Marketing and Distribution Agreement,
as amended (the "Exclusive Marketing Agreement").
This strategic shift has allowed the Company to eliminate its entire national
direct sales and service infrastructure permitting a significant reduction in
the Company's operating expenses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Sales revenues increased by $110,000, or 2.6%, to $4,396,000 for the three
months ended March 31, 2001 from $4,286,000 for the comparable period of 2000.
Sales in the first quarter of 2001 were entirely to Safety-Kleen pursuant to the
Exclusive Marketing Agreement compared to company direct sales for the first
quarter of 2000.
The gross margin as a percentage of sales was 33.8% and 58.7% for the three
months ended March 31, 2001 and 2000, respectively. The decrease is a result of
sales entirely at wholesale levels to Safety-Kleen pursuant to the Exclusive
Marketing Agreement during the three months ended March 31, 2001 versus company
direct sales at higher retail prices in the first quarter of 2000.
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Selling, general and administrative expenses for the three months ended March
31, 2001 were $1,025,000, a decrease of $4,786,000, or 82.4%, compared to
selling, general and administrative expenses of $5,811,000 for the three months
ended March 31, 2000. The decrease is the result of the significant
restructuring that took place in the fourth quarter of 2000 related to the
Company entering into the Exclusive Marketing Agreement with Safety-Kleen. Cost
savings include eliminating the Company's entire sales force, dismantling the
service infrastructure, including service centers and service fleet, and related
reductions in the corporate office staff and administration.
Research and development expenses decreased by $112,000 from $166,000 for the
three months ended March 31, 2000 to $54,000 for the three months ended March
31, 2001. The decrease is due to a shift in emphasis to production needs related
to the Exclusive Marketing Agreement and a reduction in research and development
staff in the fourth quarter of 2000.
The Company recognized an operating profit of $405,000 for the three months
ended March 31, 2001 compared to an operating loss of $3,463,000 for the
comparable period in 2000. This significant turnaround is the result of the
major strategic shift and significant restructuring and cost reductions
resulting from the Exclusive Marketing Agreement with Safety-Kleen.
The Company recognized net interest expense of $1,146,000 for the three months
ended March 31, 2001, an increase of $622,000 or 118.7% compared to net interest
expense of $524,000 for the three months ended March 31, 2000. The increase in
net interest expense was primarily the result of the amortization of debt
discount associated with common stock warrants issued to lenders during the
third and fourth quarters of 2000 and increased debt at higher interest rates.
Dividends on redeemable preferred stock increased by $183,000 or 71.5% as a
result of the amortization of preferred stock discounts associated with common
stock warrants issued to investors during the second quarter of 2000.
As a result of the foregoing, the Company incurred a net loss of $741,000 for
the three months ended March 31, 2001 compared to a net loss of $3,987,000 for
the three months ended March 31, 2000.
The restructuring accrual decreased $193,000 from $301,000 at December 31, 2000
to $108,000 at March 31, 2001 as the expected restructuring costs were incurred
during the three months ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three months ended March 31, 2001
decreased by $489,000 to $838,000, compared to net cash used in operating
activities of $1,327,000 for the comparable three month period of the prior
year. The decrease for the current period is attributable to a decrease of
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approximately $3,246,000 in the net loss, from $3,987,000 to $741,000 and a
decrease in inventory of $895,000. These sources of cash were offset by an
increase in accounts receivable, increase in other assets and a decrease in
accounts payable and accrued expenses.
Net cash provided by investing activities for the three months ended March 31,
2001 was $84,000, an increase of $84,000, compared to $ 0 during the comparable
period of the prior year. This increase was a result of selling rental equipment
to Safety-Kleen during the three months ended March 31, 2001.
Net cash provided from financing activities for the three months ended March 31,
2001 decreased by $442,000 to $333,000, from $775,000 for the three months ended
March 31, 2000. The decrease is due to reduced borrowing activity on the
Company's line of credit.
At March 31, 2001, the Company had negative net working capital of $4,568,000
and cash and cash equivalents of $67,000, compared to negative net working
capital of $849,000 and cash and cash equivalents of $488,000 at December 31,
2000.
The Company borrowed an additional $400,000 in the first quarter 2001 on its
Revolving Credit Loan Agreement (the "Senior Revolver") which provides the
Company with a $5 million revolving line of credit. Pursuant to the Senior
Revolver, the Company may borrow twice a month up to the Advance Limit. The
Advance Limit is the lesser of $5,000,000 or the sum of the Advance Supplement
plus an amount based on the Company's accounts receivable and inventory. The
Advance Supplement was $3,000,000 through March 31, 2001 and is $2,500,000 for
the period April 1, 2001 until maturity. As of March 31, 2001, there was
approximately $250,000 credit available on the Senior Revolver.
The Company's material financial commitments are obligations to make lease
payments on the Company's principal executive and manufacturing facility in
Miami, Florida and equipment leases (approximately $85,000 per month),
installment payments for financed manufacturing equipment (approximately $28,000
per month), noncash interest payments on the Company's 8.25% Subordinated
Convertible Notes (approximately $132,000 per month), noncash dividends on the
Company's Series B, Series C, and Series D Convertible Preferred Stock
(approximately $105,000 per month), interest payments on its Senior Revolver (up
to approximately $58,000 per month) and Subordinated Loan Agreement
(approximately $38,000 per month).
The Company's primary sources of cash are the Senior Revolver and sales to
Safety-Kleen.
Since the Exclusive Marketing Agreement with Safety-Kleen became effective, the
Company has commenced shipping machines to Safety-Kleen and Safety-Kleen has
commenced paying the Company according to the terms of the agreement. Assuming
Safety-Kleen's continued performance, the Company currently anticipates that for
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2001 it will not require additional equity or debt financing in excess of that
available under the Senior Revolver, although there can be no assurance.
However, if none of the outstanding convertible debt and convertible preferred
stock is converted to common stock, significant amounts of cash would be
required commencing in 2002 to repay long-term debt and the redeemable preferred
stock as follows:
DEBT PREFERRED STOCK TOTAL
---- --------------- -----
2002 $ 4,292,199 $ -- $ 4,292,199
2003 27,591,022 -- 27,591,022
2004 -- 20,326,215 20,326,215
----------- ----------- -----------
Total $31,883,221 $20,326,215 $52,209,436
=========== =========== ===========
The Company believes that it may need to obtain new debt or equity capital to
fund all or part of the required payments. There is no certainty that the
Company would be able to obtain the required funds on acceptable terms.
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS.
The foregoing Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including, but not limited to, statements regarding growth in sales of
the Company's products and the sufficiency of the Company's cash flow for its
future liquidity and capital resource needs. These forward looking statements
are further qualified by important factors that could cause actual events to
differ materially from those in such forward looking statements. These factors
include, without limitation, increased competition, the sufficiency of the
Company's patents, the ability of the Company to manufacture its products on a
cost effective basis, market acceptance of the Company's products, the effects
of governmental regulation and the ability of the Company to obtain adequate
financing to support its operational and marketing plans, the expansion of its
services network and future product development. Results actually achieved may
differ materially from expected results included in these statements as a result
of these or other factors. In particular, the Company's performance for the
foreseeable future will be dependent almost completely on the performance of
Safety-Kleen, the acceptance by Safety-Kleen's customers of the Company's
products, the ability of Safety-Kleen to resell or rent the Company's products
at attractive price levels, the ability of Safety-Kleen to properly service the
Company's products as well as other factors. In addition, Safety-Kleen is
currently under reorganization pursuant to Chapter 11 of the federal Bankruptcy
Code and there can be no assurance that Safety-Kleen will be able to continue
its operations as currently conducted or otherwise be in a position to perform
under the Exclusive Marketing Agreement.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION.
Nasdaq delisting
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SYSTEMONE TECHNOLOGIES INC.
Date: May 14, 2001 /s/ PAUL I. MANSUR
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PAUL I. MANSUR
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2001 /s/ STEVEN M. HEALY
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STEVEN M. HEALY
Director of Finance and Controller
(Principal Financial Accounting Officer)
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