As filed with the Securities and Exchange Commission on July 23, 1996
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MANSUR INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 3599 65-0226813
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
PAUL I. MANSUR
CHIEF EXECUTIVE OFFICER
MANSUR INDUSTRIES INC.
8425 S.W. 129TH TERRACE 8425 S.W. 129TH TERRACE
MIAMI, FLORIDA 33156 MIAMI, FLORIDA 33156
(305) 232-6768 (305) 232-6768
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
---------------
WITH COPIES TO:
---------------
GARY M. EPSTEIN, ESQ. LAWRENCE B. FISHER, ESQ.
GREENBERG, TRAURIG, HOFFMAN, ORRICK, HERRINGTON & SUTCLIFFE
LIPOFF, ROSEN & QUENTEL, P.A. 666 FIFTH AVENUE
1221 BRICKELL AVENUE NEW YORK, NEW YORK 10103
MIAMI, FLORIDA 33131 (212) 506-5000
(305) 579-0500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
==================================================================================================================================
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
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Common Stock, $.001 par value 977,500 Shares(2) $8.00 per Share $7,820,000 $ 2,696.55
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Common Stock, $.001 par value 150,000 Shares(3) $6.75 per Share $1,012,500 $ 349.14
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Representative's Warrants 85,000 Warrants(4) $.001 per Warrant $ 85 (5)
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Common Stock, $.001 par value 85,000 Shares(6) $9.60 per Share $ 816,000 $ 281.38
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Total Registration Fee...............................................................................................$ 3,327.07
==================================================================================================================================
<FN>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Includes 127,500 Shares subject to the Underwriters' over-allotment
option.
(3) To be issued upon conversion of $1,012,500 in principal amount of
Convertible Redeemable Notes due June 10, 1997.
(4) To be issued to the Representative, as set forth on the cover page of the
Prospectus comprising a portion of this Registration Statement.
(5) No fee due pursuant to Rule 457(g).
(6) Issuable upon exercise of the Underwriter's Warrants, together with such
indeterminate number of shares of Common Stock as may be issuable by
reason of the anti-dilution provisions contained therein.
</FN>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
MANSUR INDUSTRIES INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information
Required by Items of Form S-1.
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ------------------------------- ----------------------
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus...................Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus..................Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors
and Ratio of Earnings to
Fixed Charges..............................Prospectus Summary; Risk Factors
4. Use of Proceeds.................................Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis of
Financial Condition and Results of Operations
5. Determination of Offering Price.................Outside Front Cover Page; Underwriting
6. Dilution . . ...................................Dilution
7. Selling Security Holders........................Not Applicable
8. Plan of Distribution............................Outside Front Cover Page; Inside Front Cover
Page; Underwriting
9. Description of Securities to be
Registered.................................Prospectus Summary; Capitalization; Dividend
Policy; Description of Capital Stock; Shares
Eligible for Future Sale
10. Interests of Named Experts
and Counsel ...............................Not Applicable
11. Information with Respect to the
Registrant.................................Outside Front and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Shareholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................Not Applicable
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
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SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JULY 23, 1996
850,000 SHARES
MANSUR INDUSTRIES INC.
COMMON STOCK
The shares of Common Stock, $.001 par value ("Common Stock"), offered
hereby are offered by Mansur Industries Inc. (the "Company"). Prior to this
offering, there has been no public market for the Common Stock and there can be
no assurance that any such market will develop. It is anticipated that the
initial public offering price will be between $7.00 and $8.00 per share. For
information regarding the factors considered in determining the initial public
offering price of the Common Stock, see "Underwriting." The Company has made an
application to include the Common Stock on the Nasdaq Small Cap Market under the
symbol "MANS."
--------------------
SEE "RISK FACTORS" ON PAGES 5 TO 10 FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share...... $ $ $
- --------------------------------------------------------------------------------
Total(3)....... $ $ $
================================================================================
(1) Does not include compensation payable to the Representative in the form of
a nonaccountable expense allowance equal to 3% of the gross proceeds of
this offering. In addition, see "Underwriting" for information concerning
indemnification and contribution arrangements with and other compensation
payable to the Underwriters.
(2) Before deducting estimated expenses of $465,750 payable by the Company,
which includes the nonaccountable expense allowance payable to the
Representative.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
127,500 additional shares of Common Stock upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $_______,
$______ and $_______, respectively. See "Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this offering and to reject any order in whole or in part. It is expected
that delivery of the shares of Common Stock offered hereby will be made against
payment on or about ____________, 1996 at the offices of First Allied
Securities Inc., New York, New York.
-------------------
FIRST ALLIED SECURITIES INC.
____________, 1996
[Photos/Art]
The following text appears as a caption: MANSUR. The Company's line of
self-contained, recycling industrial parts washers incorporate innovative,
proprietary and patented waste minimization technologies and represent a
significant advance over currently available machinery and processes.
Artistic depictions of the following appear here: The Company's Series 500
SystemOne washers, the Company's multiprocess Jet and Immersion Washers and
the Company's Series 300 SystemOne Mini Washer.
The following text appears as a caption: MANSUR versus INDUSTRY
An artistic depiction of the Company's Series 500 SystemOne Washer appears here.
The following text appears in a caption: The Company's products allow the use
and re-use of the cleaning solvent by removing all the contaminants from the
solvent within the cleaning unit itself, minimizing the volume of waste
by-product and providing pure solvent to the customer on demand, without the
costly and dangerous storage and transportation of hazardous waste.
An artistic depiction of a large recycling plant and the recycling process
employed by the Company's competitors appears here.
The following text appears as a caption: Under the most common current practice,
the cleaning solvent becomes contaminated (and less effective) with repeated use
and it must be stored until pickup, when pure solvent is delivered and
contaminated solvent is generally shipped to regional refining facilities
(typically a four to six week cycle).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------
THE COMPANY WILL FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS CERTIFIED BY AN INDEPENDENT AUDITING FIRM.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES (I) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION (THE
"OVER-ALLOTMENT OPTION") TO PURCHASE UP TO 127,500 SHARES OF COMMON STOCK HAS
NOT BEEN EXERCISED, (II) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 85,000
SHARES OF COMMON STOCK HAVE NOT BEEN EXERCISED, AND (III) THAT $1,012,500 IN
PRINCIPAL AMOUNT OF CONVERTIBLE NOTES (THE "CONVERTIBLE NOTES") ISSUED IN A
PRIVATE FINANCING COMPLETED BY THE COMPANY IN JUNE 1996 HAS BEEN CONVERTED INTO
150,000 SHARES OF COMMON STOCK SIMULTANEOUSLY WITH THE CLOSING OF THIS OFFERING.
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "UNDERWRITING."
THE COMPANY
GENERAL
Mansur Industries Inc. (the "Company") has developed and obtained patent
protection with respect to a full line of self-contained, recycling industrial
parts washers that incorporate innovative, proprietary waste minimization
technologies and represent a significant advance over currently available
machinery and processes. Focusing on waste minimization rather than its removal
and recovery, the Company believes that its equipment will have a major impact
on the industrial parts cleaning industry and will have a broad appeal to
customers, because its equipment, unlike the machines now in use, facilitates
efficient and economical compliance with environmental regulations, minimizes
waste disposal requirements, enhances cleaning solution utilization, and
increases worker safety and productivity.
Most machinery and equipment require oil lubrication to function properly.
Removal of lubrication oils from tools and parts during automotive, aviation,
marine and general industrial maintenance, service and repair operations is
typically effected through the use of mineral spirit solvents which become
contaminated in the cleaning process. Under the most common current practice,
the solvent becomes more contaminated (and less effective) with repeated use,
and, when it is saturated with oil, sludge and other contaminants as a result of
the cleaning process (and frequently classified as a hazardous waste under
federal and state regulations), it must be stored on site until pick-up, when
pure solvent is delivered and the contaminated solvent is, generally, shipped to
regional refining facilities. This off-site recycling program is typically
scheduled on four to sixteen week cycles and involves both the utilization of
progressively more contaminated solvent for cleaning operations until the
solvent is too contaminated for use, and thereafter, the on-site storage of the
hazardous solution until the periodic waste recovery service. By contrast, the
Company's products allow the use and re-use of the solvent by removing all the
contaminants from the solvent within the cleaning unit itself, minimizing the
volume of waste by-product and providing pure solvent to the customer on demand,
without the costly and dangerous storage and transportation of hazardous waste.
Moreover, the small amount of waste by-product yielded in the distillation
process utilized by the Company's products can typically be recycled and/or
disposed of together with the customer's used motor oil, which is generally not
classified as a hazardous waste. Substantially all of the Company's target
customers have established systems for the handling, transportation, recycling
and disposal of used motor oil. The Company's products have been extensively
tested and proven effective by independent engineering concerns and testing
laboratories.
While the Company intends to exploit its current full line of industrial
washers, and to continue its research and development of new products, it has
initially focused its attention on its General Parts Washer, marketed as
SystemOne(TM) (the "SystemOne(TM) Washer"). The SystemOne(TM) Washer consists of
a washing sink mounted on top of a metal cabinet in which the distillation and
recovery apparatus is contained. The equipment allows the solvent to be used,
treated and re-used, on demand, without requiring off-site processing. The
Company has concluded extensive testing by independent laboratories
-1-
and at various commercial sites and is currently conducting test marketing in a
local area within close proximity to its facilities. Demonstrator models were
placed in 38 selected automotive repair facilities of national, fleet,
industrial and commercial accounts. Notwithstanding the absence of a formal
marketing program during the test period, the Company has, as of the date of
this Prospectus, received orders from a number of facilities in which the
machines were placed, including Florida Detroit Diesel MTU (46 Units); Kelly
Tractor Company and Pantropic Power Products, South Florida Caterpillar dealers
(48 Units); United States Postal Service (2 Units); Southern Sanitation, a
subsidiary of Waste Management, Inc. (5 Units); Broward County Mass Transit (25
Units); and a number of South Florida automobile dealerships (an aggregate of 54
Units). The Company commenced commercial sales and delivery of units in July
1996 at an approximate price per unit of $2,700.
The initial market for the Company's industrial cleaning product line
includes automotive, aviation, marine and general industrial maintenance,
service and repair operations. The Company believes that domestic expenditures
in connection with industrial parts cleaning machines exceeds $1.0 billion
annually, and that the anticipated monthly cost to the customer for the
Company's products typically will not exceed, and is intended to be well below,
the monthly cost of the non-recycling machines now in use. Additional
competitive advantages provided by the Company's products include practical and
cost effective compliance with demanding regulations of the Environmental
Protection Agency; elimination of routine waste disposal costs; significant
improvements in cleaning productivity; minimized cleaning solution purchases;
and reduction of equipment down time for routine machine maintenance.
The Company has retained experienced executives to head and develop its
sales and marketing organization. In addition to its regional office in Miami,
the Company expects to open four additional service centers in Orlando, Tampa,
Jacksonville and West Palm Beach, Florida during 1996. The Company expects to
pursue a national expansion program, through internal growth utilizing a network
of regional distribution and service centers, as in Florida, through a strategic
alliance with a national distributor, if one is available on favorable terms, or
through a combination of the two. In August, the Company will commence a pilot
program with First Recovery and Valvoline Oil Company, two affiliates of Ashland
Inc., a multinational oil refiner and distributor of automotive related
products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of
mineral spirits solvent used in the Company's SystemOne(TM) Washer. Under the
pilot program, First Recovery will be the exclusive distributor of the
SystemOne(TM) Washer in the Dallas/Ft. Worth and Houston markets. The initial
term of the program is one year. If the arrangement proves successful, the
Company expects to negotiate a broader agreement, possibly including a national
distribution program.
The Company has manufactured all its prototype and test models at its
10,000 square foot research and development ("R&D") facility. The Company's
current manufacturing capabilities include advanced Computer Aided
Design/Computer Aided Manufacturing technology and state of the art
manufacturing machinery. Because the Company's R&D facility can be utilized to
manufacture up to 200 units of the SystemOne(TM) Washer per month, all
manufacturing operations, including design, metal fabrication, robotic welding,
painting and assembly, can be performed in the Company's R&D facility during the
Company's initial roll-out phase. At present, the Company plans to continue to
use its own facility for existing and new product R&D activities and to use
contract manufacturers when a product achieves commercial sales levels. In order
to accommodate increased demand for the SystemOne(TM) Washer, the Company has
entered into an agreement with a contract manufacturer with respect to the
manufacture of at least 3,000 units during the first year thereof. In addition,
the Company has entered into negotiations with a major contract manufacturer
with a 2 million square foot facility and 75 years of experience to provide the
manufacturing capacity needed to meet anticipated future customer demand.
-2-
THE OFFERING
Common Stock Offered............................. 850,000 shares
Common Stock Outstanding After Offering.......... 4,351,309(1)
Use of Proceeds by the Company................... The Company intends to apply the net
proceeds of the offering for the:
development of marketing, sales and
service centers; development of
manufacturing capacity; purchase of raw
materials and inventory; development of
corporate headquarters and research and
development facilities; and working capital
and general corporate purposes. See "Use
of Proceeds."
Risk Factors..................................... This offering involves a high degree of risk
and immediate substantial dilution. See
"Risk Factors" and "Dilution."
Proposed Nasdaq SmallCap Symbol.................. MANS
<FN>
- --------------------
(1) Does not include an aggregate of 375,000 shares of Common Stock reserved for
issuance upon exercise of options available for future grant and future
restricted stock awards under the Company's Incentive Compensation Plan.
See "Underwriting" and "Management--Incentive Compensation Plan."
</FN>
Mansur Industries Inc. was incorporated in Florida in 1990. The Company's
principal executive office is located at 8425 S.W. 129th Terrace, Miami, Florida
33156, and its telephone number is (305) 232-6768.
-3-
Summary Financial Data
The summary financial information set forth below should be read in
conjunction with financial statements appearing elsewhere in this Prospectus.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- ------------------------
1991(1) 1992 1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ----------- ---------- ------------
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative......$ 8,502 $ 8,971 $ 81,886 $ 268,414 $ 907,393 $ 418,079 $ 622,641
Research and development........ 128,439 31,924 69,256 178,146 393,874 162,732 365,435
--------- ---------- ---------- ---------- ----------- ---------- ------------
Total operating expenses.... 136,941 40,895 151,142 446,560 1,301,267 580,811 988,076
--------- ---------- ---------- ---------- ----------- ---------- ------------
Interest (expense), net.............. -- (16,299) (16,360) (46,312) (17,878) (26,462) (13,094)
Conversion (expense) on redeemable
preferred stock................. -- -- -- -- -- -- (344,631)
Loss on disposition of property and
equipment....................... -- (39,560) (18,000) -- -- -- --
--------- ---------- ---------- ---------- ----------- ---------- ------------
Net (loss)........................... (136,941) (96,754) (185,502) (492,872) (1,319,145) (607,273) (1,345,801)
Dividends on redeemable preferred
stock........................... -- -- (8,328) (53,929) (222,067) (75,066) (147,000)
--------- ---------- ---------- ---------- ----------- ---------- ------------
Net (loss) to common shares..........$(136,941) $(96,754) $(193,830) $(546,801) $(1,541,212) $(682,339) $(1,492,801)
========= ========== ========== ========== =========== ========== ============
Net (loss) per common share(2)....... $(0.07) $(0.05) $(0.10) $(0.27) $(0.66) $(0.34) $(0.53)
========= ========== ========== ========== =========== ========== ============
Weighted average shares
outstanding(2)..................2,000,000 2,000,000 2,000,000 2,000,000 2,335,140 2,000,000 2,799,071
JUNE 30, 1996
-----------------------------------
ACTUAL AS ADJUSTED(3)
------------ --------------
BALANCE SHEET DATA:
Working capital............................. $(216,966) $5,921,034
Total assets................................ 1,562,712 6,628,212
Total liabilities........................... 1,575,428 502,928
Total stockholders' equity (deficit)........ (12,716) 6,125,284
- --------------------------
(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) Adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as
a result of the conversion of the Convertible Notes; and (ii) the sale of
850,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $7.50 per share and the initial application of the
estimated net proceeds therefrom. See "Capitalization" and "Use of
Proceeds."
-4-
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT DECISION.
LIMITED OPERATING HISTORY; SIGNIFICANT AND CONTINUING LOSSES. The Company
was formed in November 1990 and was a development stage company through June 30,
1996. It has only recently commenced the marketing and sale of one of its
product lines on a limited basis, and has a limited operating history upon which
an evaluation of the Company's performance and prospects can be made. The
Company's prospects must be considered in light of the numerous risks, expenses,
delays, problems and difficulties frequently encountered in the establishment of
a new business in an industry characterized by vigorous competition and
regulatory requirements. Since inception, the Company has incurred significant
losses, including losses of $492,872 and $1,319,145, for the years ended
December 31, 1994 and 1995, respectively, and a loss of $1,345,801 for the six
months ended June 30, 1996. Losses are continuing through the date of this
Prospectus. Inasmuch as the Company's operating expenses have increased and can
be expected to continue to increase significantly in connection with the
Company's proposed expansion, including the development of manufacturing
capabilities, the development and establishment of regional sales, service and
technological support centers and a service fleet, the development of a larger
corporate headquarters and research and development facility, and the purchase
of raw materials and inventory, the Company anticipates that losses and negative
operating cash flow will continue until such time, if ever, as the Company is
able to generate sufficient revenues to offset its operating costs and the costs
of continuing expansion. There can be no assurance that the Company will
generate significant revenues or ever achieve profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
UNCERTAINTY OF MARKET ACCEPTANCE. To date, the Company's products have been
marketed in limited geographic areas and, thus, have achieved only limited
market acceptance. The Company is attempting to market a new product which
relies on a fundamental change in the way parts and tools are cleaned and
solvent utilized, an activity pattern which has been relatively consistent
within the target industries in the past. As is typically the case with an
emerging business concept, demand and market acceptance for newly introduced
products and services are subject to a high level of uncertainty. The Company
has limited marketing experience and limited financial, marketing, personnel and
other resources to undertake extensive marketing activities. The Company's
success will be largely dependent on the Company's ability to position its
products as a preferred method for cleaning parts. The Company believes that
substantially all its target customers currently utilize competitive parts
cleaning equipment. Potential customers may elect to utilize devices or methods
with which they are more familiar or which they believe to be more efficient or
have other advantages over the Company's system. Accordingly, achieving market
acceptance for the Company's products will require substantial marketing efforts
and expenditure of significant funds to educate automotive dealership and repair
facilities and other potential users of the products of the distinctive
characteristics and benefits of the Company's products as well as their
environmental and cost savings advantages. There can be no assurance that the
Company's efforts will result in significant initial or continued market
acceptance for the Company's products or that the Company will succeed in
positioning its products as a preferred method for cleaning parts. See
"Business-Marketing and Servicing Strategy."
INDUSTRY COMPETITION. The parts cleaning industry is characterized by
intense competition, and the industry is dominated by Safety-Kleen, Inc. A
number of other companies provide parts cleaning equipment and services. While
the Company believes that none of its competitors offer a product with the same
features as the Company's products, many customers may view the products as
functionally equivalent, and there can be no assurance that functionally
equivalent products will not become available in the near future. In addition,
there are numerous companies involved in the waste management industry,
-5-
including waste hauling companies and companies engaged in waste separation,
recovery and recycling, which may have the expertise and resources that would
encourage them to attempt to develop and market products which would compete
with the Company's products or render them obsolete or less marketable.
Safety-Kleen, Inc., as well as most of the companies marketing such waste
disposal services or products or with the potential to do so, are well
established, have substantially greater financial and other resources than the
Company, and have established reputations relating to product design,
development, marketing and support. There can be no assurance that the Company's
financial performance and prospects will not be negatively affected if
Safety-Kleen, Inc. materially lowers the price to customers of its parts
washers, or that the Company will be able to compete successfully. See
"Business-Competition."
RISKS ASSOCIATED WITH RAPID EXPANSION. The Company has achieved limited
growth to date and has limited experience in effectuating rapid expansion or in
managing operations which are geographically dispersed. Expansion of the
Company's operations will be dependent on, among other things, the Company's
ability to achieve significant market acceptance for its products, successfully
locate, establish and operate Service Centers, hire and retain skilled
management, marketing, technical and other personnel, secure adequate sources of
supply on a timely basis and on commercially reasonable terms, successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective quality controls), and maintain a third party leasing
program capable of financing the customer's acquisition of the Company's
products in a timely manner. To date, a substantial portion of the Company's
products have been installed on a test basis in automotive dealership and repair
facilities concentrated in limited geographic markets near the Company's
headquarters. The Company's growth prospects will be largely dependent upon its
ability to achieve greater penetration in these markets as well as significant
penetration in new geographic markets. The Company's prospects could be
adversely affected by declines in the automotive sales, maintenance or service
industries or the economy generally, which could result in reduction or deferral
of capital expenditures by prospective customers. The Company's future growth
will also be dependent upon the Company's ability to achieve a sufficient
installed base of its products. The Company may also seek to expand its
operations through the acquisition of existing companies with customer bases
that would appear to have needs for the Company's product line. There can be no
assurance that the Company will be able to successfully expand its operations.
See "Business-Marketing and Servicing Strategy."
DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION; POSSIBLE
NEED FOR ADDITIONAL FINANCING. The Company's capital requirements have been and
will continue to be significant. The Company is dependent on and intends to use
a substantial portion of the proceeds of this offering to implement its proposed
expansion. The Company anticipates, based on currently proposed plans and
assumptions relating to its operations (including the anticipated costs
associated with, and timetable for, its proposed expansion), that the proceeds
of this offering, together with cash flow from operations, will be sufficient to
satisfy its contemplated cash requirements for at least 12 months following the
consummation of this offering. In the event that the Company's plans change, its
third party lease financing arrangement does not function as anticipated, its
assumptions change or prove to be inaccurate or if the proceeds of this offering
or cash flow otherwise prove to be insufficient to fund expansion (due to
unanticipated expenses, delays, problems, difficulties or otherwise), the
Company has plans to restructure its operations to minimize cash expenditures
and/or obtain additional financing in order to support its plan of operations.
The Company has no current arrangements with respect to, or sources of,
additional financing and there can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. Although the
Company believes that available third party lease financing may help offset the
Company's cost structure for product rollout, a significant level of demand for
the Company's products will, in all likelihood, initially result in significant
up-front capital expenditures without corresponding cash flow. Any additional
equity financing may involve dilution to the interests of the Company's then
existing shareholders. If adequate funds are not available from additional
sources of financing, the Company's business may be materially adversely
affected. See "Use of Proceeds."
-6-
RISKS ASSOCIATED WITH PRODUCT FINANCING. The Company has entered into a
third party lease financing arrangement with Oakmont Financial Services
("Oakmont"), pursuant to which Oakmont has agreed to provide third party leasing
services. If the Company breaches certain warranties, Oakmont has the right to
require the Company to repurchase the leased unit from Oakmont. To the extent
that the Company is required to use a portion of the proceeds of this offering
to repurchase units from Oakmont, the Company will have less resources available
to it for other purposes. Oakmont has the right to review the creditworthiness
of proposed lessees and to withhold financing on the basis of its credit review.
While the Company may terminate its agreement with Oakmont if Oakmont
consistently refuses to approve the credit of the Company's proposed lessees,
any such termination, in the absence of alternative financing programs, could
have a material adverse effect on the Company. The Company is not likely to
utilize third party financing with respect to units leased under its pilot
marketing program with First Recovery and Valvoline Oil Company, but will,
instead, use a portion of the proceeds of this offering. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON ENVIRONMENTAL LEGISLATION. In recent years, government
authorities have adopted extensive regulations regulating the storage, handling,
shipment, recycling and/or disposal of hazardous waste, including contaminated
solvent used in industrial parts washers. The Company believes that continuing
initiatives of federal, state and local government authorities and increasing
storage and hauling costs and disposal fees will create incentives for customers
to use the Company's products. Failure by government authorities to continue to
implement such legislation or significant relaxation of such requirements or
enforcement thereof could have a material adverse effect on the Company's
business and prospects. Moreover, while the Company believes that its process
results in pure solvent and a residue that is not classified as hazardous waste,
but may, rather, be disposed of or utilized as used motor oil, there can be no
assurance that environmental agencies will reach the same conclusion. If the
residue is classified as hazardous waste, or if used motor oil itself is
classified as hazardous waste, the Company will lose a significant competitive
advantage. The Company believes that certain of its competitors have attempted
and are continuing their efforts to have used motor oil classified as a
hazardous waste. See "Business-Industry Overview" and "Risk Factors -- Potential
Warranty Expense and Product Liability."
DEPENDENCE ON THIRD-PARTY MANUFACTURING ARRANGEMENTS. The Company will be
dependent on third parties for its components and for the manufacture of a large
portion of its finished units. Although the Company has several alternative
manufacturing sources and believes that additional alternative manufacturing
sources are readily available, failure by its current manufacturers to continue
to supply the Company on commercially reasonable terms, or at all, in the
absence of readily available alternative sources, would have a material adverse
effect on the Company. The Company is substantially dependent on the ability of
its manufacturers, among other things, to satisfy performance and quality
specifications and dedicate sufficient production capacity for components within
scheduled delivery times. See "Business--Manufacturing and Supply."
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION. The Company holds four
United States patents and has four United States patents pending with respect to
the Company's products. Two of the five pending patents have been allowed by the
U.S. Patent Office and are awaiting issuance. Other parts washing machines which
may not be covered by the Company's patents are currently in commercial
distribution by the Company's competitors. The Company has applied for
international patents in Canada, Mexico, Europe and Japan and anticipates that
it will apply for additional patents as deemed appropriate. The Company believes
that patent protection is important to its business and that it could be
required to expend significant funds in connection with enforcing or defending
its patent rights. There can be no assurance as to the breadth or degree of
protection which existing or future patents, if any, may afford the Company,
that any unissued patent applications will result in issued patents or that
patents will not be circumvented or invalidated. It is possible that the
Company's existing patent rights may not be valid although the Company believes
that neither its products nor processes now infringe or will infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or
-7-
proprietary rights of others may occur. In the event that the Company's products
or processes infringe patents or proprietary rights of others, the Company may
be required to modify the design or obtain a license. There can be no assurance
that the Company will be able to do so in a timely manner, upon acceptable terms
and conditions or at all. Failure to do any of the foregoing could have a
material adverse effect on the Company. In addition, there can be no assurance
that the Company will have the financial or other resources necessary to enforce
or defend a patent infringement, proprietary rights violation action or alleged
infringement or violation action. Moreover, if the Company's products or
processes infringe patents or propriety rights of others, the Company could,
under certain circumstances, become the subject of an immediate injunction and
be liable for damages, which could have a material adverse effect on the
Company. See "Business -Patents, Trademarks and Proprietary Technology."
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such agreements will adequately protect
the Company's trade secrets. Since the Company believes that its proprietary
information is important to its business, failure to protect such information
could have a material adverse effect on the Company. See "Business-Patents,
Trademarks and Proprietary Information."
POTENTIAL WARRANTY EXPENSE AND PRODUCT LIABILITY. The Company
unconditionally warrants its products to be free of material defects for 60
months. In addition the Company warrants to users that if, for any reason, the
residue generated by its System One(TM) Washer cannot be recycled and/or
disposed of as used oil, the Company will pay for any required recovery and
disposal services. Accordingly, the Company could incur significant warranty
expenses as a result of defects in its products or a change in federal or state
regulations pertaining to the disposal of cleaning residue. Since the Company
only recently commenced its planned principal operations, the reserve account it
will establish for warranty expense will be derived without the benefit of
historical figures and actual warranty expenses could exceed the amount which
will be established as a reserve. The Company may also be exposed to potential
product liability claims by its customers and users of its products. The Company
maintains product liability insurance coverage of $5,000,000 in the aggregate
and $5,000,000 per occurrence. The Company believes such insurance provides
adequate coverage for the types of products currently marketed by the Company.
There can be no assurance, however, that such insurance will be sufficient to
cover potential claims or that an adequate level of coverage will be available
in the future at a reasonable cost. A partially insured or completely uninsured
successful claim against the Company could have a material adverse effect on the
Company. See "Business-Sales Financing and Service Programs" and "-Product
Liability and Insurance."
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the personal efforts of Pierre Mansur, its Chairman of the Board
and President and the inventor of the Company's products, Paul Mansur, its Chief
Executive Officer, and other key personnel. Although the Company has entered
into employment agreements with Pierre Mansur and Paul Mansur which expire in
September 1997, the loss of the services of either of such individuals or
certain other key employees, could have a material adverse effect on the
Company's business and prospects. The Company has obtained and is the sole
beneficiary of "key-man" life insurance on Pierre Mansur and Paul Mansur each in
the amount of $1,000,000. The success of the Company is also dependent upon its
ability to hire and retain additional qualified marketing, technical and other
personnel. There can be no assurance that the Company will be able to hire or
retain such personnel. See "Management."
CONTROL BY MANAGEMENT. After consummation of this offering, Pierre Mansur
will beneficially own approximately 46% of the Company's outstanding Common
Stock. Accordingly, Pierre Mansur will be in
-8-
a position to effectively control the Company, including the election of all of
the directors of the Company. See "Management" and "Principal Shareholders."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO RELATED
PARTIES. Approximately $572,000 (11%) of the estimated net proceeds from this
offering has been allocated to working capital and general corporate purposes.
Accordingly, the Company's management will have broad discretion as to the
application of such proceeds. In addition, the Company may use a portion of the
net proceeds allocated to working capital to pay salaries and benefits of
executive officers over the 12 months following the consummation of this
offering to the extent cash flow is insufficient for such purpose. See "Use of
Proceeds."
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to this
offering, there has been no public market for the Common Stock, and no assurance
can be given that an active trading market will develop or be sustained after
this offering. Since there has been no trading market, the initial public
offering price of the Common Stock may not bear any relationship to the actual
value of the Common Stock. The initial public offering price was established by
negotiations between the Company and the Representative, is not necessarily
related to the Company's asset value, net worth or other established criteria of
value, and may not be indicative of prices that will prevail in the trading
market. The stock market has experienced significant price and volume
fluctuations that are often unrelated to the operating performance of particular
companies. The market price of the Common Stock, similar to that of securities
of other development stage companies, is likely to be highly volatile. Factors
such as the results of studies and trials by the Company or its competitors,
other evidence of the efficacy of products of the Company or its competitors,
announcements of technological innovations or new products by the Company or its
competitors, changes in governmental regulation, developments in patent or other
proprietary rights of the Company or its competitors, including litigation,
fluctuations in the Company's operating results and changes in general market
conditions could have a significant impact on the future price of the Common
Stock. See "Underwriting."
EFFECTIVE OF ANTI-TAKEOVER LEGISLATION; POSSIBLE ADVERSE EFFECT OF ISSUANCE
OF PREFERRED STOCK ON MARKET PRICE AND RIGHTS OF COMMON STOCK. The State of
Florida has enacted legislation that may deter or frustrate takeovers of Florida
corporations. The Florida Control Share Act generally provides that shares
acquired in excess of certain specified thresholds will not posses any voting
rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires supermajority approval by disinterested directors or
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). The Company's Articles of Incorporation authorize the
issuance of 1,500,000 shares of "blank check" Preferred Stock ("Preferred
Stock") with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. The issuance of
any series of Preferred Stock having rights superior to those of the Common
Stock may result in a decrease in the value or market price of the Common Stock.
Holders of Preferred Stock to be issued in the future may have the right to
receive dividends and certain preferences in liquidation and conversion rights.
The issuance of such Preferred Stock could make the possible takeover of the
Company or the removal of management of the Company more difficult, discourage
hostile bids for control of the Company in which shareholders may receive
premiums for their Common Stock and adversely affect the voting and other rights
of the holders of the Common Stock. The Company may in the future issue
additional shares of its Preferred Stock. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. As of the date of
this Prospectus, 4,351,309 shares of Common Stock are issued and outstanding. Of
such shares, 1,000,000 shares are freely tradeable
-9-
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless held by an "affiliate" of the Company.
The remaining 3,351,309 shares of Common Stock are "restricted securities," as
that term is defined under Rule 144 promulgated under the Securities Act. Of
such shares, 2,656,729 shares are currently eligible for sale under Rule 144 and
the remainder will become eligible for sale under Rule 144 at various times
prior to June 1998. No prediction can be made as to the effect, if any, that
sales or shares of Common Stock or the availability of such shares for sale will
have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital through the sale of its
equity securities. See "Shares Eligible for Future Sale."
DIVIDENDS. The Company has not paid any cash dividends on its Common Stock
and does not expect to declare or pay any cash dividends in the foreseeable
future. See "Dividend Policy."
DILUTION. The assumed initial offering price of $7.50 is substantially
higher than the net tangible book value per share of Common Stock. Investors
purchasing shares of Common Stock in this offering will incur immediate and
substantial dilution of approximately $6.10 per share of Common Stock from the
assumed initial public offering price. See "Dilution."
INEXPERIENCE OF REPRESENTATIVE. The Representative commenced operations in
1994 and does not have extensive experience as an underwriter of public
offerings of securities. The Representative has acted as the managing
underwriter for three public offerings. The Representative is a relatively small
firm and no assurance can be given that the Representative will participate as a
market maker in the Common Stock. See "Underwriting."
FORWARD -- LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding, among other items (i) the Company's growth strategies,
(ii) the impact of the Company's products and anticipated trends in the
Company's business, and (iii) the Company's ability to enter into contracts with
certain suppliers and strategic partners. These forward-looking statements are
based largely on the Company's expectations and are subject to a number of risks
and uncertainties, certain of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of the factors described herein, including, among others, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire or prove to be accurate.
-10-
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Common Stock offered hereby are estimated to be approximately $5,271,750
based on an assumed initial public offering price of $7.50 per share
(approximately $6,103,688 if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.
APPROXIMATE
APPROXIMATE PERCENTAGE OF NET
APPLICATION OF PROCEEDS DOLLAR AMOUNT PROCEEDS
----------------------- ------------- -----------------
Development of manufacturing capacity(1)........................... $ 750,000 14%
Development of marketing, sales and service centers and
service fleet(2).......................................... 1,250,000 24
Development of corporate headquarters and research and
development facilities(3)................................. 700,000 13
Purchase of raw materials and inventory(4)......................... 2,000,000 38
Working capital and general corporate purposes..................... 571,750 11
---------- ---
Total............................................ $5,271,750 100%
========== ===
<FN>
- ---------------------------
(1) Represents the estimated cost of developing the Company's manufacturing
capabilities, primarily for research and development, testing and initial
pre-commercial manufacturing operations, including certain property, plant
and equipment costs, set-up costs, hard and soft tooling costs and custom
mold development costs over the next 12 months. See "Business -
Manufacturing and Supply" and "--Research and Development."
(2) Represents the estimated cost of developing sales, service and
technological support centers and a fleet of service vehicles throughout
Florida and the eastern United States over the next 12 months. See
"Business - Marketing and Servicing Strategy."
(3) Represents the estimated cost of developing a larger corporate
headquarters and research and development facility, including the cost of
a client server computer system, over the next 12 months. See "Business -
Research and Development."
(4) Represents the estimated cost of raw materials and finished goods
inventory that may be held by the Company, as well as the cost of units
provided under its pilot marketing program with First Recovery and
Valvoline Oil Company for which the Company will not use third party
financing.
</FN>
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this offering based upon the current status of its business
operations, its current plans, and current economic and industry conditions.
Future events, as well as changes in economic or competitive conditions or the
Company's business and the results of the Company's sales and marketing
activities may make shifts in the allocation of funds within or between each of
the items referred to above necessary or desirable.
If the Underwriters exercise the over-allotment option in full, the Company
will realize additional net proceeds of approximately $832,000 which will be
added to the Company's working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this offering, together with
projected cash flow from operations, will be sufficient to satisfy its
contemplated cash requirements for at least 12 months following the consummation
of this offering. In the event that the Company's plans change or its
assumptions change or prove to be inaccurate or if the proceeds of this offering
or cash flow prove to be insufficient (due to unanticipated expenses or
otherwise), the Company has plans to restructure its operations to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. There can be no assurance that additional financing will be
available to the Company on commercially reasonable terms, or at all.
-11-
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
-12-
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share after this
offering constitutes the dilution to investors in this offering. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock.
At June 30, 1996, the net tangible book value of the Company was $(37,170),
or $(.01) per share. After giving effect to the sale of 850,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $7.50 per
share and deducting underwriting discounts and commissions and estimated
expenses of the offering, and assuming the conversion of the Convertible Notes
into 150,000 shares of Common Stock, the pro forma net tangible book value of
the Company as of June 30, 1996 would have been $6,100,830, or $1.40 per share.
This represents an immediate increase in net tangible book value of $1.41 per
share to the existing shareholders and an immediate dilution of $6.10 per share
to new investors. The following table illustrates this dilution, on a per share
basis:
Initial public offering price of Common Stock........ $7.50
Net tangible book value before offering..... $(.01)
Increase attributable to new investors...... 1.41
Pro forma net tangible book value after offering..... 1.40
-----
Total dilution to new investors...................... $6.10
=====
If the Underwriters' over-allotment option is exercised in full, the pro forma
net tangible book value of the Company as of June 30, 1996 will be $6,932,768,
or $1.59 per share. This represents an immediate increase in net tangible book
value of $1.60 per share to the existing shareholders and an immediate dilution
of $5.90 per share to new investors.
The following table summarizes, as of June 30, 1996, the total number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid (assuming an initial public offering price
of $7.50 per share) by the existing shareholders and the new investors.
PERCENT OF AVERAGE
SHARES PERCENT OF AGGREGATE TOTAL PERCENT PER
PURCHASED TOTAL SHARES CONSIDERATION CONSIDERATION SHARE
--------- ------------ ------------- ------------- ----------
Existing Shareholders... 3,501,309 80.5% $4,142,500 39.4% $1.18
New Investors........... 850,000 19.5% 6,375,000 60.6% $7.50
========== ====== ========== ======
Total............. 4,351,309 100.0% 10,517,500 100.0%
If the Underwriters' over-allotment option is exercised in full, the new
investors will have paid $7,331,250 for 977,500 shares of Common Stock,
representing 63.9% of the total consideration for 21.8% of the total number of
shares outstanding.
-13-
DIVIDEND POLICY
The Company intends to retain all future earnings for the operation and
expansion of its business and does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. Any future determination as to the
payment of cash dividends will depend on a number of factors, including future
earnings, results of operations, capital requirements, the financial condition
and prospects of the Company and any restrictions under credit agreements
existing from time to time, as well as such other factors as the Board of
Directors may deem relevant. No assurance can be given that the Company will pay
any dividends in the future.
CAPITALIZATION
Set forth below is the capitalization of the Company at June 30, 1996, and
as adjusted to reflect the Company's issuance of 850,000 shares of Common Stock
in this offering at an assumed initial public offering price of $7.50 per share
and the automatic conversion of the Convertible Notes. See Note 5 of Notes to
Financial Statements.
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
DEBT:
Short-term debt......................................$1,012,500 $ 0
Current installments of long-term debt............... 48,786 48,786
Long-term debt, excluding current installments....... 129,014 129,014
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $1 par value; 1,500,000 shares
authorized; no shares issued and
outstanding................................ 0 0
Common Stock, $.001 par value; 25,000,000 shares
authorized; 3,351,309 and 4,351,309
shares issued and outstanding,
respectively............................... 3,351 4,351
Additional paid in capital.......................... 3,560,948 9,697,948
Deficit accumulated during the
development stage.......................... 3,577,015 3,577,015
---------- ----------
Total stockholders' equity (deficit)........ (12,716) 6,125,284
---------- ----------
Total capitalization ................................$1,177,584 $6,303,084
========== ==========
-14-
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
financial statements of the Company. The financial statements as of and for the
period from November 13, 1990 (inception) through December 31, 1991 and for the
years ended December 31, 1992, 1993, 1994 and 1995 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. In the opinion of
the Company, the financial information for each of the six month periods ended
June 30, 1995 and 1996, which is unaudited, includes all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary for
a fair presentation of its financial position and results of operations for
these periods. The statement of operations data for the six month period ended
June 30, 1996 is not necessarily indicative of the results of operations that
may be expected for the full year. The selected financial data presented below
should be read in conjunction with the Company's financial statements, related
notes, and other financial information contained in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------ ---------------------------
1991(1) 1992 1993 1994 1995 1995 1996
------------ ----------- ----------- ----------- ------------ ----------- ------------
STATEMENT OF OPERATIONS
DATA:
Operating expenses:
General and
administrative ....... $ 8,502 $ 8,971 $ 81,886 $ 268,414 $ 907,393 $ 418,079 $ 622,641
Research and
development .......... 128,439 31,924 69,256 178,146 393,874 162,732 365,435
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 136,941 40,895 151,142 446,560 1,301,267 580,811 988,076
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest (expense), net ..... -- (16,299) (16,360) (46,312) (17,878) (26,462) (13,094)
Conversion (expense) on
redeemable preferred
stock................... -- -- -- -- -- -- (344,631)
Loss on disposition of
property and equipment.. -- (39,560) (18,000) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) .................. (136,941) (96,754) (185,502) (492,872) (1,319,145) (607,273) (1,345,801)
Dividends on redeemable
preferred stock ........ -- -- (8,328) (53,929) (222,067) (75,066) (147,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) to common
shares ................. $ (136,941) $ (96,754) $ (193,830) $ (546,801) $(1,541,212) $ (682,339) $(1,492,801)
=========== =========== =========== =========== =========== =========== ===========
Net (loss) per common
share(2) ............... $ (0.07) $ (0.05) $ (0.10) $ (0.27) $ (0.66) $ (0.34) $ (0.53)
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding(2) ......... 2,000,000 2,000,000 2,000,000 2,000,000 2,335,140 2,000,000 2,799,071
JUNE 30, 1996
---------------------------
ACTUAL AS ADJUSTED(3)
----------- --------------
BALANCE SHEET DATA:
Working capital ................................ $ (216,966) $5,921,034
Total assets ................................... 1,562,712 6,628,212
Total liabilities .............................. 1,575,428 502,928
Stockholders' equity (deficit):
Total stockholders' equity (deficit) ...... (12,716) 6,125,284
- -----------------------
(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) Adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as
a result of the conversion of the Convertible Notes; and (ii) the sale of
850,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $7.50 per share and the initial application of the
estimated net proceeds therefrom. See "Capitalization" and "Use of
Proceeds."
-15-
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 Prospectus.
GENERAL
Since its inception in November 1990 the Company has devoted substantially
all of its resources to research and development programs relating to its full
line of self contained, recycling industrial parts washers. The Company was a
development stage company through June 30, 1996, and commenced its planned
principal operations in July 1996. The Company has been unprofitable since its
inception and expects that it will incur significant additional losses at least
through December 31, 1996. From the period from inception through June 30, 1996,
the Company incurred a cumulative net loss of $3,577,015. The Company
anticipates that it will incur losses until such time, if ever, as the Company
is able to generate sufficient revenues to offset its operating costs and the
costs of its continuing expansion. In light of the material uncertainties in
connection with the commencement of the Company's operations, the Company cannot
reasonably estimate the length of time before the Company may generate net
income, if ever.
The Company intends to make its SystemOne(TM) Washer and services available
to the public through a third party leasing program. The Company will recognize
the revenue from the sale of a machine at the time that the equipment is
delivered either to the third party lessor or directly by the Company to the
lessee. A portion of the revenue (currently estimated at 10% of the sale price
per machine) will be accounted for as deferred revenue, and recognized as
revenue in respect of the service portion of the agreement over the term of the
underlying lease. See "Business - Sales Financing and Servicing Programs" for a
description of the Product Financing Agreement the Company has entered into with
Oakmont Financial Services.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
The Company did not generate any revenues prior to June 30, 1996.
The Company's general and administrative expenses increased by $204,562 to
$622,641 for the six months ended June 30, 1996 from $418,079 during the
comparable period in 1995. The increase is primarily attributable to the
Company's hiring of additional management, sales and marketing staff in
anticipation of the Company's commencement of its planned principal operations
and the Company's grant of an aggregate of 30,000 shares of Common Stock to
three directors of the Company in exchange for certain consulting services.
The Company's research and development expenses for the six months ended
June 30, 1995 and 1996 were $162,732 and $365,435, respectively. The 125%
increase is primarily a function of the Company's accelerated prototype
development during the latter period, as opposed to the basic and applied
research conducted during the prior period. During 1996, the Company
manufactured and shipped a number of SystemOne(TM) Washers to various facilities
to test market receptivity.
The Company's interest expenses for the six months ended June 30, 1995 and
1996 were $38,259 and $24,179, respectively. The Company's interest expense in
the six months ended June 30, 1996 decreased by 36% relative to the six months
ended June 30, 1995 due to a relative decrease in the indebtedness of the
Company. In the six months ended June 30, 1995 and 1996, the Company earned
interest income of $11,797 and $11,085 on cash deposits.
-16-
In the six months ended June 30, 1995, the Company incurred a conversion
expense of $344,631 in connection with its efforts to induce all the holders of
the Company's Series A Preferred Stock to convert their Series A Preferred Stock
to Common Stock.
As a result of the foregoing, the Company incurred a net loss of $607,273
and $1,345,801 in the six months ended June 30, 1995 and 1996, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
The Company's general and administrative expenses for the years ended
December 31, 1994 and 1995 were $268,414 and $907,393, respectively. The
$638,979 increase in general and administrative expenses was a function of the
Company's hiring of additional management and sales staff, increased use of
management consulting, engineering, legal and accounting professionals, purchase
of more comprehensive insurance policies and increased executive compensation.
For the years ended December 31, 1994 and 1995, the Company's research and
development expenses were $178,146 and $393,874, respectively. The $215,728
increase in research and development expenses was a reflection of the Company's
accelerated research and development efforts and an increased focus on
developing prototype products during the latter part of 1995.
The Company's interest expense was $46,312 and $63,528 for the years ended
December 31, 1994 and 1995, respectively. The Company's interest expense
increased by $17,216 as a result of additional interest expenses incurred with
respect to equipment financing secured in September 1994. In the year ended
December 31, 1995, the Company earned interest income of $45,650 on cash
deposits.
Due to the factors described above, the Company incurred net losses of
$492,872 and $1,319,145 in the years ended December 31, 1994 and 1995,
respectively.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.
The Company's general and administrative expenses were $81,886 in the year
ended December 31, 1993 and $268,414 in the year ended December 31, 1994.
General and administrative expenses increased by $186,528 primarily in response
to increases in the Company's staff and the Company's increased use of
management consulting, engineering, legal and accounting professionals.
For the years ended December 31, 1993 and 1994, research and development
expenses were $69,256 and $178,146, respectively. The Company's expenses for
research and development increased by $108,890 as the Company increased the
scope of its research and development efforts to a number of product lines.
Interest expense for the Company for the years ended December 31, 1993 and
1994 was $16,360 and $46,312, respectively. The Company's interest expense
increased by $29,952 primarily as a result of $10,346 of additional interest
expense with respect to equipment financing secured in September 1994 and
$11,278 of additional interest expense with respect to notes payable.
In the year ended December 31, 1993, the Company recognized a $18,000 loss
on the disposal of property and equipment.
As a result of the foregoing, the Company incurred net losses of $185,502
and $492,872 in the years ended December 31, 1993 and 1994, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital deficiency of
$(216,966) and cash and cash equivalents of $640,592. The Company intends to use
the proceeds of this offering and the cash generated from operations, if any, to
finance its proposed plan of operations.
The capital requirements relating to implementation of the Company's
business plan will be significant. Based on the Company's current assumptions
relating to implementation of its business plan (including the timetable of and
the cost associated with development of manufacturing capabilities, a service
fleet, a corporate headquarters, and research and development facilities), the
Company will seek to develop at least four service centers during the 12 months
immediately following this offering. The Company believes that product sales
will commence in the third quarter of 1996 and that the proceeds from the
Convertible Notes are sufficient to fund working capital requirements until
sales of the Company's products reach levels sufficient to fund working capital
requirements. The Company believes that its ability to generate cash from
operations is dependent upon, among other things, demand for its products and
services and the Company's third party leasing arrangement with Oakmont. If the
Company's third party leasing arrangements with Oakmont proves to be
unsuccessful, and the Company is unable to locate another third party willing to
provide comparable third party leasing services, the Company believes that it
will be substantially dependent upon the proceeds of this offering to execute
its proposed plan of operations over the next 12 months. If the Company's plans
change, its assumptions prove to be inaccurate, the capital resources available
to the Company otherwise prove to be insufficient to implement its business plan
(as a result of unanticipated expenses, problems or difficulties, or otherwise)
or in the event this offering is not completed, the Company has plans to
restructure its operations to minimize cash expenditures and/or obtain
additional financing in order to support its plan of operations. In order to
reduce certain of the Company's up-front capital requirements associated with
service center and service fleet development, the Company intends to lease
service center sites and may seek to the extent possible, to lease rather than
purchase certain equipment and vehicles necessary for service center
development. There can be no assurance that the Company will have sufficient
capital resources to permit the Company to fully implement its business plan.
The Company has no current arrangements with respect to, or sources of,
additional financing. There can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. If adequate
funds are not available from additional sources of financing, the Company's
business may be materially adversely affected. In addition, any implementation
of the Company's business plan subsequent to the 12 month period immediately
following this offering will require capital resources substantially greater
than the proceeds of this offering or otherwise currently available to the
Company.
The Company's material commitments relate to its obligations to pay the
contract manufacturers of its SystemOne(TM) Washers, make lease payments
pursuant to certain real property and equipment leases and satisfy its financial
obligations under three employment agreements. Upon consummation of this
offering, the Company will not have any outstanding indebtedness. The Company
anticipates that its material commitments will increase significantly upon the
consummation of this offering as a result of the Company's planned expansion.
See "Business-Manufacturing and Supply" and "-Properties" and "Executive
Compensation." Additionally, under certain circumstances, the Company would be
required to acquire the lessor's interest of First Recovery in certain leases
entered into by First Recovery under a pilot marketing program. Because the
Company does not intend to use third-party financing with respect to units
leased under the pilot marketing program with First Recovery and Valvoline Oil
Company, it will be required to use a portion of the proceeds of this offering
to finance those units. See "Business-Marketing and Servicing Strategy."
In August 1994, the Company acquired a Trumpf Model 200 TC Computer
Numerical Controlled Punch Press (the "Punch Press"). The Company financed the
acquisition of the Punch Press pursuant to a finance and security agreement with
The CIT Group/Equipment Financing, Inc. ("CIT"). Pursuant to the terms of the
finance agreement and security agreement, the Company has agreed to pay CIT an
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aggregate of $341,397 in equal monthly payments of $5,690 over five years. The
Company's obligations to CIT are secured by a security interest in the Punch
Press.
As indicated in the accompanying financial statements, as of June 30, 1996,
the Company's accumulated deficit totalled $3,577,015. Since its inception, the
Company has financed its operations through a variety of stock and debt
issuances and conversions and the sale of property. In November 1990, the
Company obtained from Pierre Mansur, its Chairman and President, all rights to
certain ongoing research and development and related patents and patents
pending, as well as certain real estate and equipment, in exchange for 2,000,000
shares of Common Stock. In January 1991, the Company issued $300,000 in
principal amount of its 12% Promissory Notes (the "Promissory Notes"). To raise
additional capital and refinance a portion of the Promissory Notes, in September
1993 the Company issued 580,000 shares of 12% Cumulative Redeemable Preferred
Stock (the "First Series Preferred Stock") in exchange for $380,000 and the
satisfaction of $200,000 in principal amount of the Promissory Notes.
In April 1992, the Company sold the commercial property originally
contributed to the Company in 1990 for $120,000 in cash and a $200,000 purchase
money mortgage ("PMM"), which bore interest at a rate of 12%. In January 1994,
the Company assigned its rights to receive interest with respect to the PMM to
satisfy the Company's obligation to pay interest with respect to the remaining
outstanding Promissory Note. The principal amount of the PMM was paid to the
Company on April 24, 1995.
In November 1994, the Company borrowed $500,000 pursuant to a 12% Secured
Convertible Promissory Note (the "Secured Note") and in April 1995 the Company
issued 490,000 shares of 12% Cumulative Convertible Preferred Stock (the "Series
A Preferred Stock") in exchange for $1,950,000 in cash and the satisfaction of
the Secured Note.
To minimize the Company's dividend obligations, in May 1995 the Company
issued a notice of redemption with respect to the First Series Preferred Stock
and, subsequently, all of the outstanding shares of First Series Preferred Stock
and accrued interest thereon were converted into an aggregate 656,729 shares of
Common Stock.
In May 1996, the Company issued 20,000 shares of Common Stock in
satisfaction of the remaining outstanding $100,000 in principal amount of the
Promissory Notes.
In June 1996, the Company issued 628,180 shares of Common Stock in exchange
for all of the Series A Preferred Stock and accrued dividends thereon.
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur
advanced the Company an aggregate of $150,000 (the "Debt") between June 1, 1990
and May 31, 1996. On December 31, 1994 and December 31, 1995, the Company paid
Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction of interest
owed with respect to the Debt. On May 31, 1996, the Company paid Mr. Paul Mansur
$150,000 and $5,000 in satisfaction of the outstanding principal balance of and
the interest owed with respect to the Debt.
In June 1996, the Company issued (the "Private Financing") $1,012,500 in
principal amount of Convertible Notes, bearing interest at the rate of 4% per
annum through September 30, 1996 and thereafter until maturity at the rate of
12% per annum, and convertible into Common Stock at a conversion price of $6.75
per share. Pursuant to the provisions of the Convertible Notes, the entire
outstanding principal amount thereof will be automatically converted into
150,000 shares of Common Stock upon the consummation of this offering. Each of
Environmental Technologies BVI, Limited, a consulting firm of which Dr. Jan
Hedberg, a director of the Company, is Managing Director, Mr. Joseph E. Jack, a
director of the Company, and Mr. Elias F. Mansur, a director of the Company,
acquired Convertible Notes in the principal amount of $101,250, and, upon
consummation of this offering, each of them will receive 15,000 shares of the
Company's Common Stock pursuant to the automatic conversion thereof.
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BUSINESS
GENERAL
The Company has developed and obtained patent protection with respect to a
full line of self-contained, recycling industrial parts washers that incorporate
innovative, proprietary waste minimization technologies and represent a
significant advance over currently available machinery and processes. Focusing
on waste minimization rather than its removal and recovery, the Company believes
that its equipment will have a major impact on the industrial parts cleaning
industry and will have a broad appeal to customers, because its equipment,
unlike the machines now in use, facilitates efficient and economical compliance
with environmental regulations, minimizes waste disposal requirements, enhances
cleaning solution utilization, and increases worker safety and productivity.
Most machinery and equipment require oil lubrication to function properly.
Removal of lubrication oils from tools and parts during automotive, aviation,
marine and general industrial maintenance, service and repair operations is
typically effected through the use of mineral spirit solvents which become
contaminated in the cleaning process. Under the most common current practice,
the solvent becomes more contaminated (and less effective) with repeated use,
and, when it is saturated with oil, sludge and other contaminants as a result of
the cleaning process (and frequently classified as a hazardous waste under
federal and state regulations), it must be stored on site until pick-up, when
pure solvent is delivered and the contaminated solvent is, generally, shipped to
regional refining facilities. This off-site recycling program is typically
scheduled on four to sixteen week cycles and involves both the utilization of
progressively more contaminated solvent for cleaning operations until the
solvent is too contaminated for use, and thereafter, the on-site storage of the
hazardous solution until the periodic waste recovery service. By contrast, the
Company's products allow the use and re-use of the solvent by removing all the
contaminants from the solvent within the cleaning unit itself, minimizing the
volume of waste by-product and providing pure solvent to the customer on demand,
without the costly and dangerous storage and transportation of hazardous waste.
Moreover, the small amount of waste by-product yielded in the distillation
process utilized by the Company's products can typically be recycled and/or
disposed of together with the customer's used motor oil, which is generally not
classified as a hazardous waste. Substantially all of the Company's target
customers have established systems for the handling, transportation, recycling
and disposal of used motor oil. The Company's products have been extensively
tested and proven effective by independent engineering concerns and testing
laboratories.
STRATEGY
The Company's strategy is to focus initially on the manufacture, marketing
and sale of its SystemOne(TM) Washer because of the anticipated size of the
market for the product. The Company anticipates that the product should be able
to achieve fairly rapid market penetration because of its technological,
economic and environmental advantages and its relatively low price point
compared to competitive equipment. Once the manufacturing and marketing programs
for the SystemOne(TM) Washer are fully implemented, it will commence marketing
its other products for which it has continued its research and development. The
Company hopes to rapidly penetrate the industrial parts cleaning market by
entering into large quantity contracts with target customers which have already
established a national or regional presence, and are able to exploit more fully
the economic and environmental benefits of the Company's products.
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The Company expects to pursue a national expansion program, through
internal growth utilizing a network of regional distribution and service
centers, through a strategic alliance with a national distributor, if one is
available on favorable terms, or through a combination of the two. The Company
is carrying out an internal growth program in Florida, where, in addition to its
regional service center in Miami, it plans to establish at least four additional
centers during the 12 months immediately following this offering, in Orlando,
Tampa, Jacksonville and West Palm Beach. In August, the Company will commence a
test of a strategic marketing alliance by entering into a pilot program with
First Recovery and Valvoline Oil Company, two affiliates of Ashland Inc., a
multinational oil refiner and distributor of automotive related products,
including Valvoline Oil and Ashland 140 Solvent, one of the brands of mineral
spirits solvent used in the Company's SystemOne(TM) Washer. Under the pilot
program, First Recovery will be the exclusive distributor of the SystemOne(TM)
Washer in the Dallas/Ft. Worth and Houston markets. The initial term of the
program is one year. If the arrangement proves successful, the Company expects
to negotiate a broader agreement, possibly including a national distribution
program.
The Company expects to continue its emphasis on research and development
even after its initial products are commercialized. The Company believes that
its technology and its emphasis on waste minimization should yield product
advances with broad market applications beyond the Company's current target
market.
INDUSTRY OVERVIEW
The Company believes the chemical industrial parts cleaning industry has
grown primarily in response to the demand for means of removing lubrication oils
and other contaminants from tools and parts during automotive, aviation, marine
and general industrial maintenance, service and repair operations. Based on
financial and trade journal reports, the Company believes that in 1996
businesses in the United States incurred more than $1 billion in expenses to
clean industrial parts using chemical cleaning techniques. Industrial parts
cleaning machines are used by automotive, aviation and maritime service, repair
and rebuilding facilities, gas stations, transmission shops, parts
remanufacturers, machine shops, and general manufacturing operations of every
size and category requiring parts cleaning.
The Company believes that the level of demand for the different types of
industrial parts cleaning machines and services is and will continue to be a
function of, among other things: (1) the effectiveness of the technology; (2)
the cost of the machines and service; (3) the time and costs associated with
documenting compliance with applicable environmental and other laws; (4) the
safety and environmental risks associated with the machine and service; (5)
customer service; and (6) the difficulty in handling the regulated substances
used and/or generated by competitive machines.
PRODUCTS AND SERVICES
The Company product line includes a variety of self-contained recycling
industrial cleaning and washing equipment, all of which incorporate proprietary
waste minimization technology with respect to which the Company has obtained or
applied for patent protection. The Company expects that all the products listed
below will be available for commercial exploitation at various times prior to
December 31, 1998. All of the Company's products utilize technology that (i)
provides continuously recycled cleaning solution during the cleaning process,
(ii) eliminates the necessity for continual replacement and disposal of
contaminated cleaning solution and residues and (iii) facilitates practical and
cost effective compliance with environmental laws and regulations. The Company
anticipates that it will offer its various parts washing products to commercial
users at prices which range from $2,000 to $25,000 per unit.
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SYSTEMONE(TM) WASHER.
The first of the Company's products to be available in commercial
quantities is the SystemOne(TM) Washer. The SystemOne(TM) Washer line provides
users with pure mineral spirit solvent for parts and tools cleaning purposes,
utilizing a low-temperature vacuum distillation process to recycle the used
solvent within the SystemOne(TM) Washer, so that the solvent may be reused, on
demand, without any need for off-site processing. The SystemOne(TM) Washer
minimizes the volume of waste by-product and eliminates the need for storage and
disposal of the hazardous waste solvent necessitated by the most widely-used
current treatment method.
The Company's SystemOne(TM) Washer consists of one or two washing sinks
mounted at standing level on top of a metal cabinet; a hinged lid on top of the
washing sink to minimize evaporation of solvent; a five gallon primary solvent
holding tank; a distillation unit which contains a residue reservoir; and a 30-
gallon secondary solvent holding tank. The SystemOne(TM) Washer utilizes a
manually operated hose and scrubber which directs the flow of solvent to the
part being cleaned.
The distillation unit separates the solvent from the contaminants that
accumulate in the solvent as a result of use by heating the solvent solution in
a vacuum to a temperature at which the solvent, but not the residue, vaporizes;
and then, cooling the solvent vapor so that the vapor condenses and is converted
back into a liquid. The distilled solvent is channeled to the secondary solvent
holding tank for future use. Accordingly, the solvent may be repeatedly used,
distilled and reused without need for off-site distillation or processing. The
residue is collected and held in the residue reservoir until final disposal.
With respect to SystemOne(TM) Washers which are used in accordance with
their intended purpose, the Company believes that the residue may be legally
recycled and/or disposed of in the same manner that used oil is recycled and/or
disposed of. See "-Government Regulations." The Company believes that
substantially all of its target customers currently have established systems for
the handling, transportation, recycling and disposal of used oil. In those
instances in which the residue may not be recycled as used oil, the residue, but
not the distilled solvent, shall be periodically picked up, recycled and/or
disposed of by a third party. The Company warrants to users that if, for any
reason, the residue generated by its SystemOne(TM) Washer cannot be recycled
and/or disposed of as used oil, the Company will pay for any required recovery
and disposal services. The Company does not intend to be in the business of
handling, transporting, recycling and/or disposal of residue. If it is required
under its warranty to pay for recovery and disposal, it intends to retain a
third party to provide the required services.
The Company has also developed and obtained patent protection with respect
to a general parts washer which utilizes an aqueous based cleaning solution. The
Company is in the process of evaluating when it will commence the commercial
production and marketing of its aqueous based parts cleaner.
The target market for SystemOne(TM) Washers are automotive, aviation and
maritime service, repair and rebuilding facilities, gas stations, transmission
shops, parts remanufacturers, machine shops, and general manufacturing
operations of every size and category requiring small parts cleaning.
The Company anticipates that the SystemOne(TM) Washer will require service
approximately four times a year for replacement of solvent lost to evaporation
or spillage and general maintenance requirements. See "Marketing and Services
Strategy" for additional information regarding the servicing of the
SystemOne(TM) washers.
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OTHER PRODUCTS.
MULTIPROCESS POWER SPRAY WASHER is currently manufactured and marketed on a
limited basis, and integrates three processes in one self-contained machine; a
power spray wash process, a recycling/reclamation process and a thermal
oxidation process. The Power Spray Washer is able to accommodate large and bulky
parts or units that are too large for the SystemOne(TM) Washer. The target
market for power spray washers are automotive, aviation and maritime
maintenance, repair and rebuilding facilities, parts remanufactures, machine
shops, transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MULTIPROCESS SPRAY GUN WASHER is scheduled for commercial introduction in
late 1996. It incorporates the Company's recycling/reclamation capabilities for
paint thinner recovery. The target market for spray gun washers are automotive,
aviation and maritime paint shops and all general manufacturing operations that
utilize paint. The Company anticipates that the auto paint industry will
represent a substantial market. The MultiProcess Spray Gun Washer facilitates
compliance with rigorous environmental disposal regulations for the paint
industry.
MULTIPROCESS IMMERSION WASHER is scheduled for commercial introduction in
1997. It integrates an immersion wash process, a recycling/reclamation process
and a thermal oxidation process in one self-contained machine. The MultiProcess
Immersion Washer is designed for cleaning of complex parts containing
substantial integral and highly inaccessible passages requiring a total
immersion washing. The primary target market for immersion washers are radiator
rebuilding shops as well as automotive, aviation and maritime maintenance,
repair and rebuilding facilities, parts remanufactures, machine shops,
transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MINIDISPOSER is scheduled for commercial introduction in 1998. It is a
compact and portable mini-thermal oxidizer developed as a practical and
efficient means for the disposal of contaminants by thermal oxidation within a
unit measuring only one cubic foot. The MiniDisposer will be marketed both as
optional equipment with the SystemOne(TM) Washer and as a stand alone
mini-thermal oxidizer. The Company believes that the size and scope of the
market for the MiniDisposer is substantial and diversified and includes
industrial, commercial and consumer applications that generate small contaminant
waste by-products. The Company continues to explore potential markets in
medical, restaurant and other commercial and consumer applications.
COMPETITION
The industrial parts cleaning industry is highly competitive and dominated
by a large company, Safety-Kleen Inc. ("Safety-Kleen"), which has substantially
greater financial and other resources than the Company. Safety-Kleen services
the parts cleaning industry through a "closed-loop" recycling system in which
contaminated solvent is removed for recycling and fresh solvent is delivered on
a periodic basis. There can be no assurance that Safety-Kleen will not develop
or acquire technology similar to or different from the Company's that would
allow it to provide an on-site recycling service. To the best of the Company's
knowledge, no other company is currently commercially marketing a recycling
parts washer with comparable characteristics. There can be no assurance that
Safety-Kleen or other competitors will not acquire or develop patent rights with
respect to a recycling parts washer which are competitively superior to the
Company's patent rights. See "-Patents, Trademarks and Proprietary Technology."
The Company believes that certain of its target customers have attempted to
enhance the capabilities of their existing industrial parts washers by acquiring
machines capable of distilling solvent used in and removed from the parts
washers. Although there are a wide variety and types of such
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machinery currently available to the public, the Company believes its
SystemOne(TM) Washers provide superior service at a lower cost.
The Company believes that Safety-Kleen services a significant portion of
the parts washing machines currently in use. Based upon market studies conducted
by the Company, the Company believes that no other competitor accounts for more
than 2% of the industrial parts washer market in the State of Florida or the
United States.
According to Safety-Kleen's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Safety-Kleen Annual Report"), Safety-Kleen was the
world's largest provider of parts washing services and one of the world's
largest collectors and re-refiners of used oil. According to the Safety-Kleen
Annual Report, at December 31, 1995, Safety-Kleen had Shareholders' Equity of
approximately $433.0 million and, in the year ended December 31, 1995,
Safety-Kleen had aggregate revenues of approximately $859.0 million, including
revenues of approximately $240.0 million from its automotive/retail parts
cleaning service and $119 million from its industrial parts cleaning service,
and served its customers in North America and Europe through a network of 235
branch facilities. At December 31, 1995, Safety-Kleen was providing services for
approximately 493,000 parts washers for customers in the United States, of which
approximately 375,000 were owned by Safety-Kleen and 118,000 were owned by its
customers.
The Company believes that its SystemOne(TM) Washer will compete favorably
with its competitors on the basis of, among other things, (1) the effectiveness
of the technology; (2) cost; (3) the time and cost associated with documenting
compliance with applicable environmental and other laws; (4) the safety and
environmental risks associated with the machines and service; (5) customer
service; and (6) the difficulty in handling the regulated substances used and/or
generated by competitive machines.
GOVERNMENT REGULATION
The Company believes that federal and state laws and regulations have been
instrumental in shaping the industrial parts washing industry. Federal and state
regulations dictate and restrict to varying degrees what types of cleaning
solvents may be utilized, how a solvent may be stored and utilized, and the
manner in which contaminated solvents may be generated, handled, transported,
recycled and disposed of.
Although the federal and state laws and regulations discussed below
regulate the behavior of the Company's customers, and not the Company, the
Company believes that customer demand for its SystemOne(TM) Washer is partially
a function of the legal environment in which the Company's customers conduct
business. The Company's SystemOne(TM) Washer was designed to help minimize the
cost of complying with existing federal and state environmental laws and
regulations. Any changes, relaxation or repeal of the federal or state laws and
regulations which have shaped the industrial parts washing industry may
significantly affect demand for the Company's products and the Company's
competitive position.
REGULATION OF SOLVENT TYPES. Federal and state regulations have restricted
the types of solvents that may be utilized in industrial parts cleaning
machines. Prior to December 1995, methyl chloroform was a widely used cleaning
solvent. The Clean Air Act of 1990 mandated the elimination of methyl chloroform
by December 1995.
REGULATION OF HANDLING AND USE OF SOLVENTS. Stoddard solvents, more
commonly known as mineral spirits and solvent naphtha, are the cleaning solvents
typically used in the industrial parts washers of the Company's closest
competitors. The Company intends to use mineral spirits with a minimum of 140
degrees fahrenheit ignitable limits in its SystemOne(TM) Washer. Such mineral
spirits do not exhibit the
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ignitability characteristic for liquid hazardous wastes as defined in the
Resource Conservation and Recovery Act of 1976, as amended, and the implementing
regulations of that statute adopted by the United States Environmental
Protection Agency (the "EPA") (collectively, "RCRA"). Certain machines of the
Company's competitors use mineral spirits with lower ignitable limits, which
may, after use, render such mineral spirits subject to regulation as a hazardous
waste. The Company believes that the ability to recycle the mineral spirits used
in its SystemOne(TM) Washer provides an economic benefit to the Company's
customers by allowing them to avoid the expenses and potential liability
associated with the disposal of such solvent as a hazardous waste. See
"Government Regulation -Regulation of Generation, Handling, Transportation and
Disposal of Contaminated Solvents."
Federal, state and many local governments have adopted regulations
governing the handling, transportation and disposal of such solvents. On the
federal level, under the Hazardous Materials Transportation Act (HMTA), the
United States Department of Transportation has promulgated requirements for the
packaging, labeling and transportation of mineral spirits in excess of specified
quantities. The Company does not intend to transport mineral spirits in
quantities that would trigger the HMTA requirements.
Relative to the handling and disposal of mineral spirits, many states and
local governments have established programs requiring the assessment and
remediation of hazardous materials that have been improperly discharged into the
environment. Liability under such programs is possible for unauthorized release
of mineral spirits in violation of applicable standards. Civil penalties and
administrative costs may also be imposed for such violations.
REGULATION OF GENERATION,TRANSPORTATION, TREATMENT, STORAGE AND DISPOSAL OF
CONTAMINATED SOLVENTS. The generation, transportation, treatment, storage and
disposal of contaminated solvents is regulated by the federal and state
governments.
At the federal level, the Resource Conservation and Recovery Act authorized
the EPA to develop specific rules and regulations governing the generation,
transportation, treatment, storage and disposal of hazardous wastes as defined
by the EPA. The EPA's definition of hazardous waste appears under Chapter 40 CFR
Part 261. The Company believes that none of the residue by-products, the used
solvent before distillation or the solvent recycled in a SystemOne(TM) Washer
used in accordance with its intended purpose and instructions is subject to
regulation as a "hazardous waste." In contrast, the Company believes that the
mixture of solvent and contaminants which is periodically recovered from the
machines of many of its competitors is subject to regulation as "hazardous
waste."
The Company believes that the ability to recycle and dispose of its residue
by-product as used oil rather than as a hazardous waste is economically
attractive to the Company's customers for a number of reasons. The Company
believes that substantially all of its target customers currently have
established systems for the handling, transportation, recycling and/or disposal
of used oil. Accordingly, the classification of the residue as used oil would
enable the Company's customers to: (1) dispose of or recycle the residue at no
significant additional cost; and (2) avoid certain costs associated with
establishing and disposing of wastes in compliance with a hazardous waste
disposal system.
Even if the residue by-product was required to be handled, transported,
recycled and/or disposed of as a hazardous waste, the fact that the
SystemOne(TM) Washer effects a substantial reduction in the volume of waste
product requiring disposal would still serve to minimize disposal costs.
The Company believes that solvent which has been used and is being held in
a SystemOne(TM) Washer prior to distillation is not a "waste" and is not subject
to regulation as a hazardous waste.
-25-
RCRA establishes the basic framework for federal regulation of hazardous
waste. RCRA governs the generation, transportation, treatment, storage, and
disposal of hazardous waste. In contrast to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), which is discussed
below, RCRA is designed to anticipate and prevent harm to human health and the
environment, rather than to respond to the release of hazardous wastes.
RCRA requires that facilities that generate, treat, store or dispose of
hazardous wastes comply with certain operating and permitting standards. RCRA
provides standards for permitting, maintenance and operation of facilities
handling hazardous wastes, including requirements for testing and maintenance of
equipment, contingency plans and emergency procedures, secondary containment,
recordkeeping and reporting to government agencies. The recordkeeping and
reporting requirements of RCRA are significant. Before transportation and
disposal of hazardous wastes off-site, generators of such waste must package and
label their shipments consistent with detailed regulations and prepare a
manifest to be filed with the appropriate governmental agency identifying the
material and stating its destination. The transporter must deliver the hazardous
waste in accordance with the manifest and to a facility with an appropriate RCRA
permit (a "TSD Facility"). Failure to comply with the manifesting requirements
may result in the imposition of civil and/or criminal penalties. Many states and
local governments have adopted regulatory programs which parallel the RCRA
regulatory system, many of which programs are in certain ways more restrictive
and burdensome than the RCRA system.
With regard to regulation of "used oil", the EPA ruled in 1992 that used
oil is not a hazardous waste under RCRA. Like the RCRA regulations pertaining to
hazardous wastes, the EPA's used oil regulations provide standards for
permitting, the maintenance and operation of used oil facilities, including
requirements for testing and maintenance of equipment, contingency plans and
emergency procedures, secondary containment, recordkeeping and reporting.
However, there are some material differences between RCRA's regulation of
hazardous waste and used oil. In contrast to hazardous wastes, used oil need not
be processed solely at sites with treatment, storage and disposal permits. In
addition, the generators of used oil are not required to file a shipping
manifest with government agencies with respect to each shipment of used oil.
Many state and local governments have adopted regulatory programs which parallel
the EPA's program for regulating used oil, many of which programs are in certain
ways more restrictive or burdensome than the EPA's program. For instance,
certain state and local governments continue to regulate used oil as a hazardous
waste.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), sets forth national policy and procedures for containing and
removing releases of hazardous substances, and identifying and remediating sites
contaminated with hazardous substances. CERCLA created an $8.5 billion fund (the
"Superfund"), financed from taxes on petroleum and various chemicals, to be
administered by the EPA to fund cleanup of hazardous waste sites. SARA
significantly expanded the scope of hazardous waste cleanup and imposed more
stringent cleanup requirements. The Superfund's most notable objective, however,
is to provide criteria and financial assistance for site cleanups and to impose
liability on parties responsible for such contamination - namely, owners and
operators of vessels or facilities from which such releases occur, and persons
who generated, transported, or arranged for the transportation of hazardous
substances to a facility from which a release or threatened release occurs.
Most states, including Florida, have created programs similar to Superfund.
These state programs are principally designed to help finance the state's share
of remediation costs of sites under the federal Superfund and to finance
cleanups at state sites that are not considered a priority for remediation under
the federal program.
The CERCLA definition of hazardous substances provides a major exception
for petroleum, including used oil if recycled. However, liability under CERCLA
is possible if petroleum products are
-26-
released that contain hazardous substances as additives or that are tainted with
hazardous substances during their use and disposal.
The Company believes that the demand for its SystemOne(TM) Washer is
enhanced as a result of certain federal and state environmental laws and
regulations. Although the demand for industrial parts cleaning machines and
services may be substantial in certain international markets, the level of
demand for the Company's SystemOne(TM) Washer may not be substantial in certain
countries as a result of permissive regulatory systems which allow the use of
less environmentally stringent cleaning and waste disposal methods.
MANUFACTURING AND SUPPLY
The Company manufactures certain of its SystemOne(TM) Washers at its 10,000
square foot manufacturing facility located in Miami, Florida, at which all
manufacturing operations, including design, metal cutting, bending and welding,
painting and assembly can be performed. The Company has acquired all of the
machinery necessary to manufacture SystemOne(TM) Washers. The Company believes
that it can produce up to 200 SystemOne(TM) Washers a month at its manufacturing
facility. The Company has secured third parties capable of manufacturing the
balance of the SystemOne(TM) Washers needed to meet anticipated customer demand
for the next 12 months. The Company intends to secure additional manufacturing
capacity as the need arises.
On May 7, 1996, the Company entered into an agreement (the "Supply
Agreement") with a supplier (the "Supplier") pursuant to which the Supplier
agreed to supply to the Company, at the Company's election, between 3,000 and
5,000 SystemOne(TM) Washers at established prices and in accordance with a
delivery schedule. The Supply Agreement delivery schedule provides for the
monthly delivery of a minimum of 100, 200, 300 and 400 SystemOne(TM) Washers in
the quarters commencing August 1996, November 1996, February 1997 and May 1997,
respectively, and for the monthly delivery of a maximum of 500 SystemOne(TM)
Washers after December 1996. The Supply Agreement provides for adjustments in
the established pricing schedule based upon certain reductions in the cost of
production and/or increases in the cost of sheet metal.
The Company has ordered a prototype SystemOne(TM) Washer manufactured by
the Supplier and has paid the first of three $50,000 payments toward a $150,000
advance (the "Advance"), which amount will be credited against future purchases
under the Supply Agreement at a rate of $50 per SystemOne(TM) Washer. The Supply
Agreement provides that the Supplier will, based upon the Company's
specifications and drawings, manufacture the SystemOne(TM) Washers in its
factory and manufacture such items exclusively for the Company. According to the
Supply Agreement, the Supplier is expressly responsible for all sheet metal
fabrication, painting, assembling and quality assurance testing associated with
the manufacture of SystemOne(TM) Washers.
The Supply Agreement requires the Company to provide the Supplier with all
of the components and raw materials, except for sheet metal, necessary to
manufacture SystemOne(TM) Washers. In addition, the Supply Agreement requires
the Company to acquire and provide to the Supplier for use all of the hard
tooling required to manufacture the SystemOne(TM) Washers.
The Supply Agreement provides that the Company may unilaterally terminate
the contract in whole or in part for cause or for convenience. In the event the
Supply Agreement is terminated by the Company for convenience, the Supplier will
be entitled to reimbursement of the costs it has incurred through the date of
termination and, if such termination occurs prior to the delivery of 3,000
SystemOne(TM) Washers, the Supplier will be entitled to payment for
SystemOne(TM) Washers produced through the date of termination and retain any
unapplied amount of the Advance.
-27-
The Company has retained the right to secure other contract manufacturers
of SystemOne(TM) Washers. Although, at present, the Company seeks to avoid the
transaction and opportunity costs associated with identifying, securing and
training another SystemOne(TM) Washer manufacturer, the Company does not believe
that it is dependent upon the Supplier to manufacture SystemOne(TM) Washers and
that other manufacturers are readily available. The Company has entered into
negotiations with a major contract manufacturer with a 2 million square foot
facility and 75 years of experience to provide the manufacturing capacity needed
to meet anticipated future customer demand. No assurances can be given that the
Company and the major contract manufacturers will ever enter into a binding
contract.
The SystemOne(TM) Washer is an assembly of raw materials and components all
of which the Company believes are readily obtainable in the United States of
America. The Company does not believe that it nor the Supplier is dependent upon
any of their respective current suppliers to obtain the raw materials and
components necessary to assemble and manufacture SystemOne(TM) Washers.
The Company is capable of manufacturing its other products in the amounts
required for testing and test marketing in its own manufacturing facility.
MARKETING AND SERVICING STRATEGY
In order to create awareness of its products and test the demand for them,
commencing in December 1995, the Company placed an aggregate of 47 SystemOne(TM)
Washers in 38 automotive dealerships, municipal and private fleet maintenance
facilities, repair facilities and other users of parts cleaning equipment in
South Florida. The demonstrator units were provided at no charge. The test
program was conducted primarily to enable the Company to gauge the demand for
its products. Notwithstanding the absence of a formal marketing program during
the test period, the Company has, to date, received orders from a number of
facilities in which the machines were placed, including Florida Detroit Diesel
MTU (46 Units); Kelly Tractor Company (23 units) and Pantropic Power Products
(25 units), the South Florida Caterpillar dealers; United States Postal Service
(2 units); Southern Sanitation, a subsidiary of Waste Management, Inc. (5
units); Broward County Mass Transit (25 units); and a number of South Florida
automobile dealerships (an aggregate of 54 units). The Company commenced
commercial sales and delivery of units in July 1996 at an approximate price per
unit of $2,700.
In a parallel marketing strategy, to test the viability of the strategic
marketing alliance concept for its products, in August 1996 the Company will
commence a pilot program with First Recovery and Valvoline Oil Company, two
affiliates of Ashland Oil, pursuant to which First Recovery will serve as the
exclusive distributor for the SystemOne(TM) Washer in the Dallas/Ft. Worth and
Houston markets. The program, whose initial term is one year, but is cancelable
by either party on 60 days notice, sets forth a schedule for the purchase of
1,000 units by First Recovery during the first year. First Recovery is obligated
to provide routine service to customers. Upon termination of the program, First
Recovery will have the option to require the Company to assume the leases it has
entered into with its customers and to pay First Recovery, on a discounted
basis, the profit it would have realized under such leases. If First Recovery
does not exercise that option, it will have the additional option, for one year
after termination of the program, to lease up to four times the number of units
it leased under the program, but only to its existing customers. Subject to its
assessment of First Recovery's performance, the Company will consider entering
into a more extensive distribution agreement.
The Company also intends to expand the geographic scope of its operations
through its internal marketing operations, initially focusing on Florida and
then expanding to other regions. In addition to its sales and service operations
in Miami, the Company intends to establish sales, service and technical support
service centers in Orlando, Tampa, Jacksonville and West Palm Beach, Florida
during 1996 to support its proposed operations in Florida. The Company will
market and service the SystemOne(TM) Washers it places with customers with its
own marketing, service and technical support personnel. The
-28-
Company believes it will retain at least 15 marketing, service and technical
support personnel to support its proposed operations in Florida over the next 12
months.
The Company intends to continue to generate consumer awareness of its
SystemOne(TM) Washer through the efforts of its sales force, general
advertisements in trade publications, and participation in trade conventions.
SALES FINANCING AND SERVICING PROGRAMS
Initially, the Company intends to make its SystemOne(TM) Washers available
to the public through a third party leasing program. The Company entered into an
agreement (the "Product Financing Agreement") with Oakmont Financial Services
("Oakmont") on May 28, 1996 pursuant to which Oakmont agreed to provide third
party leasing services. Pursuant to the Product Financing Agreement, the Company
is to provide Oakmont certain information with respect to each proposed customer
for which a third party lease is sought, including credit information with
respect to each proposed lessee. Oakmont may reject a lease application if, in
its sole discretion, the proposed transaction does not comply with Oakmont's
then applicable criteria. If Oakmont elects to provide lease financing, Oakmont
will purchase the SystemOne(TM) Washer in the manner and for an amount agreed to
by the Company and Oakmont from time to time, upon Oakmont's receipt of required
documentation.
The Product Financing Agreement provides that, upon the customer's
satisfaction of all of its lease payment obligations to Oakmont, the Company
may, at its option, repurchase the subject equipment from Oakmont at a cash
purchase price equal to the fair market value of the subject equipment plus
applicable sales tax. The Product Financing Agreement states that the fair
market value of a SystemOne(TM) Washer shall be determined by the mutual
agreement of the Company and Oakmont or, if such an agreement is not reached, by
an appraiser selected by mutual agreement of the Company and Oakmont.
Under the Product Financing Agreement, the Company has agreed, for a fee,
to utilize a reasonable and non-discriminatory approach to assist Oakmont in
reselling any SystemOne(TM) Washers with respect to which a customer has failed
to discharge its payment obligations to Oakmont. The Product Financing Agreement
states that Oakmont does not have recourse against the Company for customer
failures to discharge their obligations to Oakmont unless the Company has
breached and failed to cure certain warranties. In such event, the Product
Financing Agreement requires the Company to purchase from Oakmont the
SystemOne(TM) Washer and Oakmont's rights under the financing agreements with
the customer for an amount equal to the sum of all lease payments then due and
owing under the lease, all lease payments payable from the date of default to
the end of the lease term and twenty percent of the equipment cost, less any
applicable deposit which may be retained by Oakmont. Where required by
applicable law, the foregoing amounts are required to be calculated using the
discounted present value of the subject lease payments.
The Product Financing Agreement provides for a term of one year, which
automatically renews for successive one-year terms. Under the Product Financing
Agreement, either the Company or Oakmont may terminate the agreement with or
without cause upon 60 days notice, without affecting the rights and obligations
of either party with respect to previous sales. In addition, if Oakmont declines
any five lease applications within a 30-day period, which lease applications are
accepted and funded by a third party on terms declined by Oakmont, the Company
may, upon 10 days notice, terminate the Product Financing Agreement.
-29-
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company holds United States patents relating to its SystemOne(TM)
Washer, Power Spray Washer, Spray Gun Washer and Immersion Washer and
anticipates that it will apply for additional patents it deems appropriate. The
Company has applied for international patents in Canada, Japan, Europe and
Mexico.
The Company's patent with respect to its SystemOne(TM) Washer was issued on
September 27, 1994 and will expire on September 26, 2011. The Company has three
patents pending with respect to its SystemOne(TM) Washer, one of which was
allowed by the U.S. Patent Office on April 2, 1996 and is awaiting issuance. The
Company's patent with respect to its Power Spray Washer was issued on January
11, 1994, and expires on January 10, 2011. The Company's patent with respect to
its Spray Gun Washer was issued on February 14, 1995, and expires on February
13, 2012. The Company's patent with respect to its Immersion Washer was issued
on May 21, 1996 and expires on May 20, 2013. The Company's patent with respect
to its MiniDisposer was allowed by the U.S. Patent Office on June 26, 1996 and
is awaiting issuance.
The Company believes that patent protection is important to its business.
There can be no assurance as to the breadth or degree of protection which
existing or future patents, if any, may afford the Company, that any patent
applications will result in issued patents, that patents will not be
circumvented or invalidated or that the Company's competitors will not commence
marketing self-contained washers with similar technology. It is possible that
the Company's existing patent rights may not be valid although the Company
believes that its patents and products do not and will not infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or proprietary rights of others may occur. In the
event the Company's products or processes infringe patents or proprietary rights
of others, the Company may be required to modify the design of its products or
obtain a license. There can be no assurance that the Company will be able to do
so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation actions. Moreover, if the Company's
product or processes infringes patents or proprietary rights of others, the
Company could, under certain circumstances, become the subject of an immediate
injunction and be liable for damages, which could have a material adverse effect
on the Company.
The Company has applied for a federal trademark with respect to the mark
"SystemOne" and design.
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such arrangements will adequately
protect the Company's trade secrets. Since the Company believes that its
proprietary information is important to its business, failure to protect such
information could have a material adverse effect on the Company.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, the Company expended $178,146, $393,874 and $365,435,
respectively, on research and development of its various products.
-30-
The Company plans to continue to focus significant resources on research
and development of existing and future product lines. Although the Company
intends to continue to seek means of refining and improving its SystemOne(TM)
Washer, the Company believes, based on market response, that the SystemOne(TM)
Washer is at a stage where commercial exploitation is appropriate. The Company
recognizes that the industrial parts cleaning industry may be entering a phase
of rapid technological change and progress and the Company will seek to retain
what the Company perceives as its technological superiority over its
competitors' products. In order to keep pace with the rate of technological
change, the Company intends to devote considerable resources in time, personnel
and funds on continued research and development for its products. The Company
recognizes that many of its competitors have far greater financial and personnel
resources than the Company which may be devoted to research and development and
can provide no assurance that it will maintain a technological advantage.
Subject to the availability of financial and personnel resources, the
Company intends to spend approximately $400,000 and $500,000 in the years ended
December 31, 1996 and 1997, respectively, to finalize development and testing of
its various products and to develop new products and concepts. Although there
can be no assurance that the Company will ever develop any new products capable
of commercialization, the Company intends to continue its programs to develop
new products, some of which may utilize the Company's patented products and
processes.
PRODUCT LIABILITY AND INSURANCE
The Company is subject to potential product liability risks which are
inherent in the design and use of industrial parts cleaning machines. The
Company has implemented strict quality control measures and currently maintains
product liability insurance of $5,000,000 in the aggregate and $5,000,000 per
occurrence.
PROPERTIES
The Company maintains its corporate headquarters, research and development
laboratory and manufacturing facilities in a 10,000 square foot building located
in Miami, Florida 33156, under a two year lease which commenced on January 1,
1995. The lease provides for two renewal terms of two years. The Company's
annual lease payment approximates $61,000, which amount does not include the
Company's responsibility to pay all charges for gas, water, sewer, trash
collection and electrical services. The Company intends to seek additional
space, either at its current location or elsewhere, to house expanded corporate
headquarters and research and development facilities. The Company anticipates no
significant difficulty in locating such space or reasonable terms. The Company
does not anticipate that it will experience difficulty in locating and equipping
its regional sales and service centers, which are expected to contain a small
office space/showroom area and enough space for two or three delivery and
maintenance vehicles.
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
EMPLOYEES
As of the date of this Prospectus, the Company employed 15 employees, of
whom four were in corporate management, three were in research and development,
two were in sales and marketing, four were in manufacturing, and two were in
administration. The Company intends to hire additional employees after this
offering, commensurate with the Company's requirements and available funds,
primarily to expand manufacturing and marketing operations.
-31-
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Pierre G. Mansur 44 Chairman of the Board and President
Paul I. Mansur 45 Director, Chief Executive Officer and
Chief Financial Officer
Charles W. Profilet 59 Vice President-Business Development
Lydia G. Hubbell 31 Controller
Elias F. Mansur 53 Director
Dr. Jan Hedberg 49 Director
Joseph E. Jack 68 Director
- -------------------
PIERRE G. MANSUR founded the Company and has served as its Chairman and
President since its inception in November 1990. From June 1973 to August 1990,
Mr. Pierre Mansur served as President of Mansur Industries Inc., a privately
held New York corporation that operated a professional race engine machine shop.
Mr. Pierre Mansur has over twenty years of advanced automotive and machinery
operations experience including developing innovative automotive machine shop
applications; designing, manufacturing, customizing, modifying and retooling
high performance engines and component parts; developing state of the art
automotive and powerboat race engines which have consistently achieved world
championship status; and providing consulting services and publishing articles
with respect to automotive technical research data. Mr. Pierre Mansur has
conducted extensive research and development projects for several companies,
including testing and evaluating engine parts and equipment for Direct
Connection, a high performance racing division of the Chrysler Corporation;
researching and developing specialized engine piston rings and codings for Seal
Power Corporation; researching high-tech plastic polymers for internal
combustion engines for ICI Americas; and designing and developing specialized
high performance engine oil pan applications. Mr. Pierre Mansur is the brother
of Paul I. Mansur and a cousin of Elias F.Mansur. Mr. Pierre Mansur is a
graduate of the City University of New York.
PAUL I. MANSUR has been Chief Executive Officer, Chief Financial Officer
and a Director since September 1993. From September 1986 to July 1993, Mr. Paul
Mansur served as Chief Executive Officer of Atlantic Entertainment Inc., a
privately held regional retail chain of video superstores. From March 1981 to
September 1986, Mr. Paul Mansur served as the Chief Executive Officer and
President of Ameritrade Corporation, a privately held international distributor
of factory direct duty free products. From June 1972 to March 1981, Mr. Paul
Mansur held various finance and operation positions, including Assistant Vice
President Finance and Operations for Mott's USA, Inc., a division of American
Brands. Mr. Paul Mansur is the brother of Pierre G. Mansur and a cousin of Elias
F. Mansur. Mr. Paul Mansur is a graduate of the City University of New York.
CHARLES W. PROFILET has been the Vice President - Business Development of
the Company since November 1995. From July 1992 to September 1995, Mr. Profilet
served as Vice President - Florida
-32-
Operations for Rust Environment and Infrastructure, Inc., a privately held
environmental remediation company that is controlled by WMX Technologies, a
publicly traded waste collection and recycling company traded on the New York
Stock Exchange. From March 1991 to July 1992, Mr. Profilet served as Vice
President-Marketing at Metcalf and Eddy, a full-service engineering and
environmental consulting firm specializing in the treatment of waste water, air
quality assurance, emissions control and remedial design. From July 1987 to
February 1990, Mr. Profilet served as Executive Vice President and Chief
Operating Officer at Craig A. Smith and Associates, a privately-held civil
engineering firm. From August 1979 to September 1985, Mr. Profilet served as
Vice President- Business Development at Reynolds Smith and Hills, a
privately-held architectural and engineering planning firm. Mr. Profilet is a
graduate of the U.S. Military Academy at West Point and holds a Master of
Engineering degree from the University of Oklahoma.
LYDIA G. HUBBELL, C.P.A. has been the Controller of the Company since April
1995. From August 1994 until March 1995, Ms. Hubbell served as an internal
auditor for American Savings of Florida, F.S.B. From September 1992 to August
1994, Ms. Hubbell worked with KPMG Peat Marwick LLP during which period she
became the senior accountant with respect to the Company's audits. Ms. Hubbell
is a graduate of the University of Florida and holds a Master of Accounting
degree from the University of Florida.
ELIAS F. MANSUR has been a Director of the Company since August 1995. From
September 1968 to present, Mr. Elias Mansur served as Managing Director of the
Mansur Trading Company and its subsidiaries, an international, diversified group
of companies involved in banking, international trade, manufacturing, real
estate and hotel operations. From June 1975 to March 1981, Mr. Elias Mansur
served as Chairman of the Board of the Central Bank of the Netherlands Antilles.
From September 1984 to December 1985, Mr. Elias Mansur served as Minister of
Economic Affairs of the Netherlands Antilles. From October 1977 to September
1984, Mr. Elias Mansur served as the Chief Economic Advisor, Minister of
Economic Affairs and Chairman of the Council of Economic Advisors to the
government of Aruba. Mr. Elias Mansur is a cousin of Mr. Pierre Mansur and Mr.
Paul I. Mansur.
DR. JAN HEDBERG has been a Director of the Company since August 1995. From
October 1987 to March 1993, Dr. Hedberg was the Chairman and Chief Executive
Officer of Enprotec International Group, N.V., a company he co-founded and in
the business of researching and developing of advanced waste oil recycling
technologies. Since March 1993, Dr. Hedberg has been the Chairman of the Board
and Chief Executive Officer of Enprotec (USA) Inc., a wholly owned subsidiary of
Enprotec International Group, N.V., which manufactures, designs and assembles
oil re-refining plants. Dr. Hedberg was the co-recipient of the 1991
International Technology Award for Enterprising Innovation and Creativity for
the development of the Vaxon Re-refining Process, which is a proprietary process
that transforms used oil into useable oil products. Dr. Hedberg has over 15
years of experience in oil related and environmental companies and 12 years of
research and teaching experience, including executive management and advisory
positions, with several multinational organizations. Dr. Hedberg received his
Doctor of Philosophy (PhD) in Geotechnical Engineering from the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1977.
JOSEPH E. JACK has been a Director of the Company since August 1995. From
May 1989 to June 1991, Mr. Jack served as Vice President of Waste Management
Europe, a waste collection and recycling company that is a publicly traded
company on the London Stock Exchange and a controlled subsidiary of WMX
Technologies, a publicly traded New York Stock Exchange company. From April 1984
to December 1987, Mr. Jack was President of Waste Management Inc. of Florida, a
waste collection and recycling company that is an affiliate of Waste Management,
Inc.. From July 1983 to March 1984, Mr. Jack served as Vice President of Waste
Management Partners, a division of Waste Management, Inc. From February 1982 to
July 1983, Mr. Jack served as Vice President of Waste Management International,
a subsidiary of Waste Management, Inc. From April 1980 to February 1982, Mr.
Jack was Vice President of Waste
-33-
Management International (Middle East), a subsidiary of Waste Management, Inc.,
and from May 1978 to April 1980, Mr. Jack was the Resident Manager of Waste
Management Saudi Arabia, a joint venture involving an affiliate of Waste
Management, Inc. Under Mr. Jack's leadership, Waste Management experienced
unprecedented growth in several markets worldwide including Waste Management
Europe's growth of revenues from $10 million to $700 million in a three year
period. Mr. Jack's significant accomplishments in the waste management field
were acknowledged when he was inducted by the National Waste Management
Association into the United States Waste Industry's "Hall of Fame". Mr. Jack has
been an active investor in companies since he retired in June 1991.
The Company has agreed that, for five years after the effective date of
this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of Directors.
-34-
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or payable in respect of
the three years ended December 31, 1995 to the Company's Chief Executive Officer
and its other executive officer whose combined salaries and bonuses equalled or
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------------- -----------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION
- ---------------------------- ------ -------- ------- --------------- --------------
Mr. Pierre G. Mansur, Chairman and 1995 $66,000 $267,460(1) $6,605(2) $0
President 1994 $66,000 $0 $ 550(2) $0
1993 $22,000 $0 $0 $0
Mr. Paul I. Mansur, Chief Executive 1995 $48,000 $0 $2,550(2) $0
Officer 1994 $48,000 $0 $0 $0
1993 $5,000 $0 $0 $0
- ------------------
<FN>
(1) Represents incentive compensation earned by Pierre G. Mansur, $88,110 of which has been paid
and the remainder of which has been accrued.
(2) Automobile allowance paid by the Company.
</FN>
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
In September 1993, the Company entered into a two year employment agreement
with Mr. Pierre Mansur, which provides for an annual base salary of $66,000 and
discretionary bonuses, based on Mr. Pierre Mansur's performance, as determined
by the Compensation Committee of the Board of Directors. Pursuant to the terms
of his employment contract, Mr. Mansur's employment was renewed in September
1995 by the Company for an additional two years. Pursuant to the employment
agreement, during the term of Mr. Pierre Mansur's employment and for a period of
three years following his termination of employment, Mr. Pierre Mansur is
prohibited from disclosing any confidential information, including without
limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Pierre Mansur is prohibited from, directly or indirectly,
engaging in any business in substantial competition with the Company or its
affiliates. The employment agreement also provides that Mr. Pierre Mansur is
prohibited from becoming an officer, director or employee of any corporation,
partnership or any other business in substantial competition with the Company or
its affiliates during the term of his employment and for three years thereafter.
In September 1995, the Company entered into a two year employment agreement
with Mr. Paul Mansur, which provides for an annual base salary of $48,000 and
discretionary bonuses, based on Mr. Paul Mansur's performance, as determined by
the Compensation Committee of the Board of Directors. Pursuant to the employment
agreement, during the term of Mr. Paul Mansur's employment and for a period of
three years following his termination of employment, Mr. Paul Mansur is
prohibited from disclosing any confidential information, including without
limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Paul Mansur is
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prohibited from, directly or indirectly, engaging in any business in substantial
competition with the Company or its affiliates. The employment agreement also
provides that Mr. Paul Mansur is prohibited from becoming an officer, director
or employee of any corporation, partnership or any other business in substantial
competition with the Company or its affiliates during the term of his employment
and for three years thereafter.
In November 1995, the Company entered into a one year employment agreement
with Charles W. Profilet. Under the employment agreement, Mr. Profilet is
entitled to an annual base salary of $80,000, a car allowance of $400 a month
and monthly commissions, ranging from $5 per unit for parts washers to $25 per
unit for jet washers, with respect to each new washer sold by the Company in the
United States. The commissions earned by Mr. Profilet may be converted, at his
option, into Common Stock at a discount on the then current trading price of the
Common Stock. The conversion discount was 10% as of the date of this Prospectus,
but, may be adjusted at the election of the Board of Directors of the Company.
As of the date of this Prospectus, Mr. Profilet had earned an aggregate of
$12,250 of commissions. The employment agreement provides that Mr. Profilet is
eligible to participate in the Company's discretionary executive profit sharing
awards and executive stock award or stock option awards. Pursuant to the
employment agreement, if Mr. Profilet is terminated for cause, defined as an act
of dishonesty, malfeasance, or other impropriety, he is not entitled to receive
any severance payment. If Mr. Profilet is terminated without cause within his
first year of employment, he is entitled to receive his current salary for six
months or until he secures new employment, whichever occurs first. In addition
to the employment agreement, the Company and Mr. Profilet entered into a
Non-Circumvention and Non-Disclosure Agreement.
INCENTIVE COMPENSATION PLAN
The Company's 1996 Executive Incentive Compensation Plan (the "Incentive
Plan") provides for grants of stock options, stock appreciation rights ("SARS"),
restricted stock, deferred stock, other stock related awards and performance or
annual incentive awards that may be settled in cash, stock or other property
(collectively, "Awards"). The total number of shares of Common Stock that may be
subject to the granting of Awards under the Incentive Plan at any time during
the term of the Plan shall be 375,000. The Employee Plan is designed to serve as
an incentive for retaining qualified and competent employees, directors,
consultants and independent contractors of the Company.
The persons eligible to receive Awards under the Incentive Plan are the
officers, directors, employees and independent contractors of the Company, if
any, and its subsidiaries. No director of the Company who is not an employee of
the Company or any subsidiary (a "non-employee director") will be eligible to
receive any Awards under the Incentive Plan other than automatic formula grants
of stock options and restricted stock as described below, and no independent
contractor will be eligible to receive any Awards other than stock options.
The Incentive Plan is required to be administered by a committee designated
by the Board of Directors consisting of not less than two directors (the
"Committee"), each member of which must be a "disinterested person" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and an
"outside director" for purposes of Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Compensation Committee of the Board has
been appointed as the Committee for the Incentive Plan. Subject to the terms of
the Incentive Plan, the Committee is authorized to select eligible persons to
receive Awards, determine the type and number of Awards to be granted and the
number of shares of Common Stock to which Awards will relate, specify times at
which Awards will be exercisable or settleable (including performance conditions
that may be required as a condition thereof), set other terms and conditions of
Awards, prescribe forms of Award agreements, interpret and specify rules and
regulations relating to the Incentive Plan, and make any other determinations
that may be necessary or advisable for the administration of the Incentive Plan.
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In addition, the Incentive Plan imposes individual limitations on the
amount of certain Awards in part to comply with Code Section 162(m). Under these
limitations, during any fiscal year the number of options, SARS, restricted
shares of Common Stock, deferred shares of Common Stock, shares as a bonus or in
lieu of other Company obligations, and other stock-based Awards granted to any
one participant may not exceed 250,000 for each type of such Award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
a final annual incentive Award or other cash Award in any fiscal year to any one
participant is $1,000,000, and the maximum amount that may be earned as a final
performance Award or other cash Award in respect of a performance period by any
one participant is $5,000,000.
The Incentive Plan provides that each non-employee director shall
automatically receive (i) on the date of his or her appointment as a director of
the Company, an option to purchase 2,500 shares of Common Stock, and (ii) each
year, on the day the Company issues its earnings release for the prior fiscal
year, an option to purchase 2,500 shares of Common Stock. Such options will have
a term of 10 years and become exercisable at the rate of 33-1/3% per year
commencing on the first anniversary of the date of grant; provided, however,
that the options will become fully exercisable in the event that, while serving
as a director of the Company, the non-employee director dies, or suffers a
"disability," or "retires" (within the meaning of such terms as defined in the
Incentive Plan). The per share exercise price of all options granted to
non-employee directors will be equal to the fair market value of a share of
Common Stock on the date such option is granted.
The Company will agree with the Representative that for a 13-month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part, the Company will not, without the consent of the
Representative, adopt or propose to adopt any plan or arrangement permitting the
grant, issue or sale of any shares of its Common Stock or issue, sell or offer
for sale any of its Common Stock, or grant any option for its Common Stock which
shall: (x) have an exercise price per share of Common Stock less than (a) the
initial public offering price of the Common Stock offered in this Prospectus or
(b) the fair market value of the Common Stock on the date of grant; or (y) be
granted to any direct or indirect beneficial holder of more than 10% of the
issued and outstanding Common Stock of the Company. No option or other right to
acquire Common Stock granted, issued or sold during the 13- month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part shall permit (a) the payment with any form of
consideration other than cash, (b) the payment of less than the full purchase or
exercise price for such shares of Common Stock or other securities of the
Company on or before the date of issuance, or (c) the existence of stock
appreciation rights, phantom options or similar arrangements.
The Company has not granted any Award under the Incentive Plan.
COMPENSATION OF DIRECTORS
After this offering, the Company will pay each director who is not an
employee an annual retainer of $10,000. The Company will reimburse all directors
for all travel-related expenses incurred in connection with their attendance at
meetings of the Board of Directors. Directors will also be entitled to receive
options under the Incentive Plan. See "Incentive Compensation Plan."
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted
10,000 shares of the Company's Common Stock in April 1996 in exchange for
previously rendered consulting services.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE
The Board of Directors currently administers and determines compensation,
including salary and bonus for the executive officers, directors and other
employees. The Company intends to establish an Audit Committee and a
Compensation Committee shortly after the closing of this offering. The
Compensation Committee will be responsible for setting and administering
policies that govern annual compensation of the Company's executive officers and
administering the 1996 Stock Option and Incentive Plan and the Directors' Plan.
The duties and responsibilities of the Audit Committee will include (i)
recommending to the full Board the appointment of the Company's auditors and any
termination of their appointment, (ii) reviewing the plan and scope of audits,
(iii) reviewing the Company's significant accounting policies and internal
controls, (iv) administering the Company's compliance programs, and (v) general
responsibility for all related auditing matters.
CERTAIN TRANSACTIONS
COMMON STOCK OWNERSHIP
In connection with the organization of the Company in November 1990, the
Company issued 2,000,000 shares of Common Stock, par value $0.001 per share, to
Mr. Pierre Mansur in exchange for the assignment to the Company of (i) certain
ongoing research and development and rights to any related patents and patents
pending, and (ii) real estate and equipment valued at $52,000.
CONSULTING AGREEMENT AND SERVICES
In November 1994, the Company entered into a two-year consulting agreement
(the "Consulting Agreement") with Environmental Technologies BVI Limited (the
"Consultant"). Pursuant to the Consulting Agreement, the Consultant agreed to
advise, consult with, introduce to third parties and generally assist the
Company in its efforts to explore new manufacturing and marketing arrangements.
In exchange for such services, the Consulting Agreement provided that the
Consultant was entitled to receive certain fees in connection with the sale of
certain equipment, services, license rights, royalty rights, manufacturing
rights, marketing rights or the Company's entrance into a partnership or joint
venture arrangement or consummation of a merger. The Consultant did not receive
any commissions pursuant to the Consulting Agreement. In December 1995, the
Company issued the Consultant 10,000 shares of Common Stock in exchange for the
services rendered by the Consultant and to secure the Consultant's agreement to
terminate the Consulting Agreement and any and all associated rights of the
Consultant. Dr. Jan Hedberg, a director of the Company, owns 50 percent and
serves as the managing director of the Consultant.
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted
10,000 shares of the Company's Common Stock in April 1996 in exchange for
previously rendered consulting services.
NOTE PAYABLE TO CHIEF EXECUTIVE OFFICER
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur
made a series of advances ranging from $5,000 to $30,000, totaling an aggregate
of $150,000 (the "Debt"), to the Company between June 1, 1990 and May 31, 1996.
On December 31, 1994 and December 31, 1995, the Company paid Mr. Paul Mansur
$34,814 and $12,000, respectively, in satisfaction of interest owed with respect
to the Debt. On May 31, 1996, the Company paid Mr. Paul Mansur $150,000 and
$5,000 in satisfaction of the outstanding principal balance of and the interest
owed with respect to the Debt.
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CONVERTIBLE NOTES
In connection with its issuance of an aggregate of $1,012,500 in principal
amount of Convertible Notes in June 1996, the Company issued promissory notes in
the principal amount of $101,250 to each of Environmental Technologies BVI
Limited, a consulting firm of which Dr. Jan Hedberg, a director of the Company,
is Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr.
Elias F. Mansur, a director of the Company. Upon consummation of this offering,
each of the Convertible Notes will be automatically converted into 15,000 shares
of the Company's Common Stock. Mr. Mansur, Mr. Jack and Environmental
Technologies BVI Limited acquired the Convertible Notes on the same terms as
other unaffiliated investors.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock immediately prior to this offering, and
as adjusted to reflect the sale of shares offered by this Prospectus, by: (i)
each person known by the Company to be the beneficial owner of more than 5% of
the Common Stock, (ii) each Director or nominee for Director of the Company,
(iii) each of the Named Executive Officers and (iv) all Directors and Executive
Officers of the Company as a group.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED
TO THIS OFFERING AFTER THIS OFFERING
---------- ---------- --------------- -----------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- ---------------------------------------- ---------- ---------- --------------- -----------
Mr. Pierre G. Mansur..................... 2,000,000 59.68% 2,000,000 46.01%
Mr. Paul I. Mansur....................... 0 * 0 *
Mr. Elias F. Mansur...................... 26,025 * 41,025(2) *
Dr. Jan Hedberg.......................... 20,000(1) * 35,000(1)(2) *
Mr. Joseph E. Jack....................... 22,820 * 37,820(2) *
Mr. Charles W. Profilet.................. 0 * 0 *
All Directors and Executive
Officers as a Group (6 persons)...... 2,068,845(3) 61.64% 2,113,845(3) 48.6%
<FN>
- ----------------------
* Less than 1%
(1) Includes 10,000 shares of Common Stock held by Environmental
Technologies BVI Limited, of which Dr. Hedberg owns 50 percent and
serves as the Managing Director.
(2) Includes 15,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of $101,250, which conversion
shall occur simultaneously with the consummation of this offering.
(3) See Notes (1) - (2).
</FN>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.001 par value per share, and 1,500,000 shares of Preferred
Stock, $1.00 par value per share. As of the date of this Prospectus, 3,351,309
shares of Common Stock and 0 shares of Preferred Stock are outstanding.
COMMON STOCK
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of shareholders. Subject to the restrictions
summarized below, dividends may be paid to the holders of Common Stock when and
if declared by the Board of Directors out of funds legally available for
dividends. See "Dividend Policy."
Holders of Common Stock have no conversion, redemption, or preemptive
rights. All outstanding shares of Common Stock are fully paid and nonassessable.
In the event of any liquidation, dissolution or winding up of the affairs of the
Company, the holders of Common Stock will be entitled to share ratably in its
assets remaining after provision for payment of creditors and holders of
Preferred Stock. See "Dividend Policy."
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PREFERRED STOCK
The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the value or market price of
the Common Stock and voting power or other rights of the holders of Common
Stock. In the event of issuance, the Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The "Control Share Acquisitions" section of the Florida
Business Corporation Act ("FBCA") generally provides that shares acquired in
excess of certain specified thresholds, beginning at 20% of the Company's
outstanding voting shares, will not possess any voting rights unless such voting
rights are approved by a majority vote of a corporation's disinterested
shareholders. The "Affiliated Transactions" section of the FBCA generally
requires majority approval by disinterested directors or supermajority approval
of disinterested shareholders of certain specified transactions (such as a
merger, consolidation, sale of assets, issuance of transfer of shares or
reclassifications of securities) between a corporation and a holder of more than
10% of the outstanding voting shares of the corporation, or any affiliate of
such shareholder.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the community in
which the Company operates and the economy in general. Consequently, in
connection with any proposed action, the Board of Directors is empowered to
consider interests of other constituencies in addition to the Company's
shareholders, and directors who take into account these other factors may make
decisions which are less beneficial to some, or a majority, of the shareholders
than if the law did not permit consideration of such other factors.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to fact unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's beach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his
-41-
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful, (2) a transaction from which the director derived an improper personal
benefit, either directly or indirectly, (3) a circumstance under which an
unlawful distribution is made, (4) in a proceeding by or in the right of the
corporation or procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. A corporation
may purchase and maintain insurance on behalf of any director or officer against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the FBCA.
The Articles and Bylaws of the Company provide that the Company shall, to
the fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the consummation of this offering, the Company anticipates that it
will have 4,351,309 shares of Common Stock outstanding. The 1,000,000
shares of Common Stock offered hereby and pursuant to the conversion of the
Convertible Notes will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company) which will be subject to the limitations of Rule 144 adopted
under the Securities Act. All of the remaining 3,351,309 shares are deemed to be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, in that such shares were issued and sold by the
Company in private transactions not involving a public offering. Of such
remaining shares, 2,656,729 will become eligible for sale under Rule 144 90 days
from the date of this Prospectus and the remainder will become eligible for such
sale at various times prior to June 1998.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class or the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned
-42-
shares of Common Stock for at least three years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
All of the Company's officers, directors and shareholders have agreed not
to sell or otherwise dispose of any of their shares of Common Stock for a period
of 13 months from the date of this Prospectus without the prior written consent
of the Representative.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that market sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Description of Securities" for information concerning
outstanding warrants and convertible securities.
-43-
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom First Allied
Securities, Inc. is acting as Representative, have severally agreed, subject to
the terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Company has agreed to sell to
the Underwriters on a firm commitment basis the respective number of shares of
Common Stock set forth opposite their names:
UNDERWRITER NUMBER
- ------------ ----------
First Allied Securities Inc.
----------
Total ............................... 850,000
==========
The Underwriters are committed to purchase all shares of Common Stock
offered hereby if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose to initially offer the Common Stock to the public at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers at
such prices less concessions of not in excess of $_______ per share of Common
Stock. Such dealers may reallow a concession not in excess of $_______ per share
of Common Stock to other dealers. After the commencement of this offering, the
public offering prices, concessions and reallowances may be changed by the
Representative.
The Representative has advised the Company that it does not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the total number of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representative an expense allowance on a
nonaccountable basis equal to three percent (3%) of the gross proceeds derived
from the sale of the Common Stock underwritten, of which $50,000 has been paid
to date.
The Underwriters have been granted an option by the Company, exercisable
within forty-five (45) days after the date of this Prospectus, to purchase up to
an additional 127,500 shares of Common Stock at the initial public offering
price per share of Common Stock offered hereby, less underwriting discounts and
the expense allowance. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the shares offered
hereby. To the extent such option is exercised in whole or in part, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of Common Stock proportionate to
its initial commitment.
All of the Company's officers and directors and all of the holders of the
Common Stock have agreed not to, directly or indirectly, sell, transfer,
hypothecate or otherwise encumber any of their shares for thirteen (13) months
following the date of this Prospectus without the prior written consent of the
Representative.
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The Company has agreed that, for five (5) years after the effective date of
this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of Directors. Such individual
may be a director, officer, employee or affiliate of the Representative. In the
event the Representative elects not to designate a person to serve on the
Company's Board of Directors, the Representative may designate an observer to
attend meetings of the Board of Directors.
In connection with this offering, the Company has agreed to sell to the
Representative, for nominal consideration, the Representative's Warrants to
purchase from the Company 85,000 shares of Common Stock. The Representative's
Warrants are initially exercisable for shares of Common Stock at a price of
$__________ [120% of the initial public offering price per share of Common
Stock] per share of Common Stock for a period of four (4) years commencing one
(1) year from the date of this Prospectus and are restricted from sale,
transfer, assignment or hypothecation for a period of twelve (12) months from
the date hereof, except to officers and principals of the Representative. The
Representative's Warrants also provide for adjustment in the number of shares of
Common Stock issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock. The Representative's Warrants
grant to the holders thereof certain rights of registration for the securities
issuable upon exercise of the Representative's Warrants.
In connection with the Private Financing, the Representative is entitled to
receive a commission of $101,250 and a non-accountable expense allowance of
$30,375.
The Representative commenced operations in 1994 and does not have extensive
experience as an underwriter of public offerings of securities. The
Representative has acted as the managing underwriter for three public offerings.
The Representative is a relatively small firm and no assurance can be given that
the Representative will participate as a market maker in the Common Stock.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering prices of the Common Stock has
been determined by negotiations between the Company and the Representative and
is not necessarily related to the Company's asset value, net worth or other
established criteria of value. The factors considered in such negotiations
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and certain other factors as were deemed
relevant.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement filed as an Exhibit to the Registration Statement of
which this Prospectus forms a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami,
Florida. Orrick, Herrington & Sutcliffe, New York, New York, has acted as
counsel for the Underwriters in connection with the offering.
-45-
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994
and for the period from November 13, 1990 (inception) to December 31, 1991, and
each of the years in the four year period ended December 31, 1995 have been
included in this Prospectus and in the registration statement in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere in this Prospectus, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus does not contain
all the information set forth in the Registration Statement and in the exhibits
and schedules thereto. For further information about the Company and the Common
Stock, reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by such reference. Copies of each such document may
be obtained from the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C., upon payment of the charges prescribed by the
Commission. Copies of each document may also be obtained through the
Commission's internet address at http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants.............................. F-2
Financial Statements
Balance Sheets at December 31, 1994 and 1995 and
June 30, 1996 (unaudited)............................. F-3
Statements of Operations for the period from
November 13, 1990 (inception) to December 31, 1991,
and each of the years in the four year period ended
December 31, 1995 and for the six months ended June
30, 1995 (unaudited) and 1996 (unaudited)............. F-4
Statements of Stockholders' Deficit for the
period from November 13, 1990 (inception) to
December 31, 1991, and each of the years in the
four year period ended December 31, 1995 and for
the six months ended June 30, 1996 (unaudited)........ F-5
Statements of Cash Flows for the period from
November 13, 1990 (inception) to December 31, 1991,
and each of the years in the four year period ended
December 31, 1995 and for the six months ended
June 30, 1995 (unaudited) and 1996 (unaudited)........ F-6
Notes to Financial Statements......................... F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mansur Industries Inc.:
We have audited the accompanying balance sheets of Mansur Industries Inc. (a
development stage company) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders'(deficit) and cash flows for the period
from November 13, 1990 (inception) to December 31, 1991, each of the years in
the four-year period ended December 31, 1995, and the related statements of
operations, stockholders' (deficit) and cash flows for the period from November
13, 1990 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mansur Industries Inc. as of
December 31, 1994 and 1995 and the results of its operations and its cash flows
for the period from November 13, 1990 (inception) to December 31, 1991, each of
the years in the four-year period ended December 31, 1995 and for the period
from November 13, 1990 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
January 19, 1996
F-2
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS December 31, December 31, June 30,
1994 1995 1996
------------- ------------ -----------
(unaudited)
Current assets:
Cash $ 20,766 916,383 640,592
Inventory 98,593 193,838 412,431
Other assets 85,810 18,290 176,425
---------- ---------- ----------
Total current assets 205,169 1,128,511 1,229,448
Mortgage note receivable 200,000 0 0
Property and equipment, net 351,773 324,431 308,810
Intangible assets, net 0 0 24,454
---------- ---------- ----------
551,773 324,431 333,264
Total Assets $ 756,942 1,452,942 1,562,712
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 6,007 219,478 382,878
Due to officers/ shareholders 250,000 250,000 0
Convertible notes payable 0 0 1,012,500
Interest payable 45,684 0 2,250
Current installments of long-term debt 43,637 45,846 48,786
---------- ---------- ----------
Total current liabilities 345,328 515,324 1,446,414
Long-term debt, excluding current installments 700,011 154,165 129,014
---------- ---------- ----------
Total liabilities 1,045,339 669,489 1,575,428
---------- ---------- ----------
Convertible redeemable preferred stock, $1 par value.
Authorized 1,500,000 shares, issued and
outstanding 580,000 and 490,000 in 1994
and 1995 respectively. 633,929 2,573,863 0
---------- ---------- ----------
Stockholders' (deficit):
Common stock, $0.001 par value. Authorized
25,000,000 shares, issued and outstanding
2,000,000; 2,673,129 and 3,351,309 shares
for 1994, 1995 and 1996 respectively 2,000 2,673 3,351
Additional paid-in capital (12,257) 438,131 3,560,948
Deficit accumulated during the development
stage (912,069) (2,231,214) (3,577,015)
---------- ---------- ----------
Total stockholders' (deficit) (922,326) (1,790,410) (12,716)
---------- ---------- ----------
Total liabilities and stockholders'
(deficit) $ 756,942 1,452,942 1,562,712
========== ========== ==========
See accompanying notes to financial statements.
F-3
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
November 13, 1990 Year ended December 31, Six Months Ended November 13, 1990
(inception) through June 30, (inception)
December 31, ------------------------------------------ ----------------------- through
1991 1992 1993 1994 1995 1995 1996 June 30, 1996
------------------- ------- -------- -------- ---------- ----------- ----------- -----------------
(unaudited) (unaudited) (unaudited)
Operating expenses:
General and
administrative $ 8,502 8,971 81,886 268,414 907,393 418,079 622,641 1,897,807
Research and
development 128,439 31,924 69,256 178,146 393,874 162,732 365,435 1,167,074
---------- --------- -------- --------- --------- --------- --------- ----------
Total operating
expenses 136,941 40,895 151,142 446,560 1,301,267 580,811 988,076 3,064,881
---------- --------- --------- --------- ---------- --------- --------- ----------
Loss from
operations (136,941) (40,895) (151,142) (446,560) (1,301,267) (580,811) (988,076) (3,064,881)
---------- --------- --------- --------- ---------- --------- --------- ----------
Interest expense - (16,299) (16,360) (46,312) (63,528) (38,259) (24,179) (166,678)
Conversion expense on
redeemable preferred
stock - - - - - - (344,631) (344,631)
Interest Income - - - - 45,650 11,797 11,085 56,735
Loss on disposal of
property and
equipment - (39,560) (18,000) - - - - (57,560)
---------- ---------- --------- --------- ---------- ---------- --------- ----------
Net loss (136,941) (96,754) (185,502) (492,872) (1,319,145) (607,273)(1,345,801) (3,577,015)
Dividends on
redeemable
preferred stock - - (8,328) (53,929) (222,067) (75,066) (147,000) (431,324)
---------- ---------- --------- --------- ---------- ---------- --------- ----------
Net loss to common
shares $ (136,941) (96,754) (193,830) (546,801) (1,541,212) (682,339)(1,492,801) (4,008,339)
========== ========== ========== ========= ========== ========== ========= ==========
Net loss per
common share $ (0.07) (0.05) (0.10) (0.27) (0.66) (0.34) (0.53)
========== ========== ========== ========= ========== ========== =========
Weighted average
shares
outstanding 2,000,000 2,000,000 2,000,000 2,000,000 2,335,140 2,000,000 2,799,071
========== ========== ========== ========= ========== ========== =========
See accompanying notes to financial statements.
F-4
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
November 13, 1990
(inception) through Year ended December 31,
December 31,
1991 1992 1993 1994 1995
------------------ -------- ---------- --------- -----------
Cash used in operating activities:
Net loss $ (136,941) (96,754) (185,502) (492,872) (1,319,145)
Adjustments to reconcile net loss
to cash used in operating activities:
Loss on sale of property - 31,680 - - -
Write-off of equipment and patent 69,965 7,880 - - -
Depreciation - - - 18,056 42,404
Common Stock issued for services - - - - 16,400
Changes in operating assets and
liabilities:
Inventory (5,095) (23,205) (29,838) (68,755) (95,245)
Other assets 1,318) (1,174) (7,067) (76,251) (7,884)
Intangible assets - - - - -
Accounts payable and accrued
expenses 1,790 (1,666) 8,461 12,415 167,786
Advances from customer 11,500 16,800 - - -
--------- --------- --------- --------- ----------
Net cash used in operating
activities (60,099) (66,439) (213,946) (607,407) (1,195,684)
--------- --------- --------- --------- ----------
Investing activities:
Purchase of property and equipment (6,207) (4,208) (43,157) (48,227) (15,062)
Proceeds from mortgage note receivable - - - - 200,000
Net proceeds from sale of property - 68,320 - - -
--------- --------- --------- --------- ----------
Net cash provided (used) by
investing activities (6,207) 64,112 (43,157) (48,227) 184,938
--------- --------- --------- --------- ----------
Financing activities:
Proceeds from notes payable and line of credit 68,911 52,627 24,860 500,000 -
Repayment of notes payable - (15,000) - (9,262) (43,637)
Conversion expense on preferred stock converted
into common stock - - - - -
Proceeds from issuance of preferred stock - - 380,000 - 1,950,000
--------- --------- --------- --------- ----------
Net cash provided by financing 68,911 37,627 404,860 490,738 1,906,363
activities
--------- --------- --------- --------- ----------
Net increase (decrease) in cash 2,605 35,300 147,757 (164,896) 895,617
Cash, beginning of period - 2,605 37,905 185,662 20,766
--------- --------- --------- --------- ----------
Cash, end of period $ 2,605 37,905 185,662 20,766 916,383
========= ========= ========= ========= ==========
November 13, 1990
Six Months Ended (inception) through
June 30, June 30,
1995 1996 1996
---------------------------- -------------------
(unaudited) (unaudited) (unaudited)
Cash used in operating activities:
Net loss (607,273) (1,345,801) (3,577,015)
Adjustments to reconcile net loss
to cash used in operating activities:
Loss on sale of property - - 31,680
Write-off of equipment and patent - - 77,845
Depreciation 20,934 22,396 82,856
Common Stock issued for services 6,400 105,000 121,400
Changes in operating assets and
liabilities:
Inventory (85,366) (218,593) (440,731)
Other assets (1,231) (158,135) (251,829)
Intangible assets - (24,454) (24,454)
Accounts payable and accrued
expenses (38,739) 165,650 354,436
Advances from customer - - 28,300
--------- --------- ---------
Net cash used in operating
activities (705,275) (1,453,937) (3,597,512)
--------- --------- ---------
Investing activities:
Purchase of property and equipment (7,828) (6,775) (123,636)
Proceeds from mortgage note receivable 200,000 - 200,000
Net proceeds from sale of property - - 68,320
--------- --------- ---------
Net cash provided (used) by
investing activities 192,172 (6,775) 144,684
--------- --------- ---------
Financing activities:
Proceeds from notes payable and line of credit - 1,012,500 1,658,898
Repayment of notes payable (22,765) (172,210) (240,109)
Conversion expense on preferred stock
converted into common stock - 344,631 344,631
Proceeds from issuance of preferred stock 1,950,000 0 2,330,000
--------- --------- ---------
Net cash provided by financing
activities 1,927,235 1,184,921 4,093,420
--------- --------- ---------
Net increase (decrease) in cash 1,414,132 (275,791) 640,592
Cash, beginning of period 20,766 916,383 -
--------- --------- ---------
Cash, end of period 1,434,898 640,592 640,592
========= ========= =========
Supplemental disclosures of noncash investing and financing activities:
As discussed in note 7(d), in November, 1990, the Company issued 2,000,000
shares of common stock for real estate and equipment having an aggregate market
value of $52,000. In addition, the officer assigned to the Company ongoing
research and development and rights to patents and patents pending.
During April 1992, the Company sold real property for $120,000 in cash and
a $200,000 mortgage note receivable, as discussed in note 2.
In December 1993, the Company issued preferred stock in exchange for
$200,000 of notes payable.
In July 1994, the Company purchased equipment, issuing a note payable to
the seller in the amount of $252,910 (see note 5).
During 1995, convertible preferred stock in the amount of $580,000 and
related accrued dividends in the amount of $76,729 were converted to common
stock (see note 7).
During 1996, convertible preferred stock in the amount of $2,374,596 and
related accrued dividends in the amount of $346,269 and a conversion expense of
12% in the amount of $344,631 were converted to common stock (note 7).
See accompanying notes to financial statements.
F-5
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
From November 13, 1990 (inception) to June 30, 1996
Preferred stock Common stock Deficit
---------------------- -------------------------------- accumulated
Additional during the Total
paid-in development stockholders'
Shares Amount Shares Par capital stage (deficit)
------ ------ ------ --- ------- ----- -------
Balance at November 13, 1990 (inception) - $ - - $ - $ - $ - $ -
Issuance of common stock to an officer in
exchange for machinery and real estate
valued at market and rights to ongoing
research and development patents and - -
patent pending 2,000,000 2,000 50,000 - 52,000
Net loss - - - - - (136,941) (136,941)
--------- ---------- --------- --------- --------- ---------- ----------
Balance at December 31, 1991 - - 2,000,000 2,000 50,000 (136,941) (84,941)
Net loss - - - - - (96,754) (96,754)
--------- ---------- --------- -------- --------- ---------- ----------
Balance at December 31, 1992 - - 2,000,000 2,000 50,000 (233,695) (181,695)
Issuance of preferred stock in exchange
for cash 380,000 380,000 - - - - -
Issuance of preferred stock in satisfaction
of notes payable 200,000 200,000 - - - - -
Accrued dividends on preferred stock (8,328) (8,328)
Net loss - - - - - 185,502) (185,502)
--------- ---------- --------- -------- --------- ---------- ----------
Balance at December 31, 1993 580,000 580,000 2,000,000 2,000 41,672 (419,197) (375,525)
Accrued dividends on preferred stock 53,929 (53,929) (53,929)
Net loss - - - - - (492,872) (492,872)
--------- --------- --------- -------- --------- ---------- ----------
Balance at December 31, 1994 580,000 633,929 2,000,000 2,000 (12,257) (912,069) (922,326)
Issuance of preferred stock in exchange for
cash and note payable, net of costs 490,000 2,374,596 - - - - -
Accrued dividends on preferred stock 22,800 (22,800) (22,800)
Conversion of preferred stock and accrued
dividends to common stock (580,000) (656,729) 656,729 657 656,072 - 656,729
Accrued dividends on preferred stock 199,267 (199,267) (199,267)
Issuance of common stock in exchange for
services rendered - - 16,400 16 16,384 - 16,400
Net loss - - - - - (1,319,145) (1,319,145)
--------- --------- --------- -------- --------- ---------- ---------
Balance at December 31, 1995 490,000 2,573,863 2,673,129 2,673 438,132 (2,231,214) (1,790,409)
Issuance of common stock in exchange for - - 30,000 30 104,970 - 105,000
services rendered (unaudited)
Conversion of note payable into - - 20,000 20 99,980 - 100,000
common stock (unaudited)
Accrued dividends on preferred stock 147,000 (147,000) (147,000)
(unaudited)
Conversion of preferred stock and accrued (490,000) (2,720,863) 628,180 628 3,064,866 - 3,065,494
dividends to common stock (unaudited)
Net loss (unaudited) - - - - - (1,345,801) (1,345,801)
--------- --------- --------- -------- --------- ---------- ---------
Balance at June 30, 1996 (unaudited) 0 $ 0 3,351,309 $ 3,351 $3,560,948 $(3,577,015 $ (12,716)
========= ========= ========= ======== ========= ========== =========
See accompanying notes to financial statements.
F-6
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994 and December 31, 1995
and June 30, 1996 (unaudited) MANSUR INDUSTRIES INC.
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mansur Industries Inc. (the "Company") is primarily engaged in
research and development, marketing, and initial production of
industrial parts cleaning equipment for use in automotive, marine,
airline and general manufacturing industries. The Company's focus is
on the design, development and manufacture of industrial cleaning
equipment which incorporate continuous recycling and recovery
technologies for solvents and solutions, thereby reducing the need to
replace and dispose of contaminated solvents and solutions. The
Company is in the development stage.
(A) OPERATIONS AND LIQUIDITY
The Company has been primarily engaged in research, development,
marketing, and initial production of its products. The Company's
ultimate success is dependent upon future events, including the
successful commercialization of the Company's products,
establishing sources for manufacturing, marketing, and
distribution channels, the outcomes of which are currently
indeterminable, and is also dependent upon obtaining sufficient
financing. As of June 30, 1996, the Company has realized no sales
of its products.
As indicated in the accompanying financial statements as of June
30, 1996, the Company's accumulated deficit totaled $3,577,015
(unaudited). The Company has financed this deficiency primarily
through private placements of debt and equity securities.
Management expects that product sales will commence during the
second half of 1996 and that proceeds from the notes payable are
sufficient to fund working capital requirements until sales of
the Company's products reach levels sufficient to fund working
capital requirements.
In July 1996, the Company expects to file a registration
statement with the Securities and Exchange Commission (the "SEC")
in connection with a proposed initial public offering ("IPO") of
shares of its common stock. In the event that the IPO is not
completed, the Company has plans to restructure operations to
minimize cash expenditures, and/or obtain additional financing in
order to continue support of its activities. If adequate funds
are not available from additional sources of financing, the
Company's business may be materially adversely affected.
F-7
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(B) INVENTORY
Inventories are stated at the lower of cost or market using
the first-in, first-out method. Inventory consists of the
following.
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
-------------------- -------------------- ------------------
Raw materials............. $13,937 55,738 233,456
Work in progress and
finished goods.... 84,656 138,100 178,975
------------------- --------------------- ------------------
$98,593 193,838 412,431
=================== ===================== ==================
(C) PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated using the
straight-line method over the shorter of the lease term or
the estimated useful lives of the respective assets.
(D) INTANGIBLES
Patents, patent applications and rights are stated at
acquisition cost. Amortization of patents is recorded using
the straight-line method over the legal lives of the
patents, generally for periods ranging up to 17 years. The
carrying value of intangible assets is periodically reviewed
by the Company and impairments are recognized when the
expected future cash flows from operations derived from such
intangible assets is less than their carrying value.
(E) OTHER ASSETS
Included in other assets at December 31, 1994, were $75,404
in stock offering costs incurred in connection with the
Series A preferred stock private placement (note 7). On June
30, 1996, other assets consist primarily of costs relating
to the initial public offering of $94,251 and deposits with
material suppliers (note 8). (unaudited)
(F) FINANCIAL INSTRUMENTS (unaudited)
In assessing the fair value of financial instruments at
June 30, 1996 the Company has used a variety of methods and
assumptions, which were based on estimates of market
conditions and risks existing at that time. The carrying
amount of long-term debt approximates fair value at June 30,
1996. For certain instruments, including accounts payable
and accrued expenses, and short-term debt, the carrying
amount approximates fair value due to their short maturity.
F-8
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(G) RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of costs
incurred in connection with engineering activities related
to the development of industrial parts cleaning machinery
and are expensed as incurred.
(H) INCOME TAXES
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
be applied to taxable income in the years in which those
temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the
period that includes the enactment date.
(I) EARNINGS PER SHARE DATA
The computation of loss per share in each year is based on
the weighted average number of common shares outstanding.
When dilutive, convertible preferred stock and convertible
notes are included as common share equivalents using the if
converted method. As these instruments have an anti-dilutive
effect for the years presented, they are not included in the
weighted average calculation. Primary and fully diluted
earnings per share are the same for each of the years
presented.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities, if any, at the date of
the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(2) MORTGAGE NOTE RECEIVABLE
During April 1992, the Company sold real property for $120,000 in
cash and a $200,000 mortgage note receivable. The note bore
interest at a rate of 12 percent per annum payable monthly with
the principal due at maturity, being April 27, 1997. The interest
received on the mortgage note receivable was assigned by the
Company to repay interest due on an unsecured note payable and
dividends on certain of the preferred stock. In April 1995, the
balance of the note was received in full.
F-9
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment was as follows:
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 USEFUL LIFE
------------------ ----------------- ---------------- -----------------
(UNAUDITED)
Furniture and equipment......... $ 7,289 20,433 23,709 5 Years
Machinery and equipment......... 351,688 353,606 357,105 10 Years
Leasehold improvements.......... 10,852 10,852 10,852
------------------ ----------------- ----------------
369,829 384,891 391,666
Less accumulated depreciation... 18,056 60,460 82,856
------------------ ----------------- ----------------
$351,773 324,431 308,810
================== ================= ================
(4) DUE TO OFFICERS/SHAREHOLDERS
(A) NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consists of the
following:
12% unsecured note payable $ 100,000
Note payable to chief executive officer 150,000
------------
$ 250,000
============
The 12% unsecured notes payable required interest payments
monthly, with principal due at maturity. The note matured on
December 31, 1995 and was renewed for one year. Pursuant to an
amendment to the note signed in January 1996, the note was
converted into common stock at a price of $5 per share (note 7).
Advances made by the chief executive officer are pursuant to a
$200,000 line of credit agreement signed in 1990. Under the
terms of the agreement, interest is accrued at a variable rate
not to exceed 10 percent per annum nor fall below 6 percent per
annum negotiated annually. The rate for 1994 and 1995 was 6
percent. The note had a maturity date of December 31, 1995 and
was renewed for one year to mature on December 31, 1996. The
note payable to the chief executive officer was paid in full
during May of 1996 (unaudited).
(B) CONVERTIBLE NOTES PAYABLE (UNAUDITED)
In June 1996, the Company issued cumulative convertible
redeemable notes payable in the amount of $1,012,500, of which
$303,750 was due to certain directors of the Company. The notes
bear interest of 4% per annum until September 1996 and 12%
thereafter. The notes will be automatically converted into
common stock simultaneously with the initial public offering of
the
F-10
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
Company at a price of $6.75 per share. The Company may redeem
these notes in full at any time at a price equal to the
outstanding principal amount plus interest accrued thereon. Upon
the conversion of the notes into common stock resulting from an
IPO, a commission equalling 10% of the converted principal
balance and a nonaccountable expense allowance equalling 3% of
the converted principal balance is payable.
(5) LONG-TERM DEBT
DECEMBER 31,
------------------------- June 30,
1994 1995 1996
-------- -------- ----------------
(UNAUDITED)
Long-term debt consists of the following:
12% unsecured convertible promissory note, due
May 10, 1996, converted into Series A preferred
stock in 1995 (note 7)........................ $500,000
12.5% note payable in monthly installments of
$5,690, including interest due August 4, 1999,
secured by equipment with a depreciated cost of
$230,277 on June 30, 1996 (unaudited)......... 243,648 200,011 177,800
Less current installments.................... 43,637 45,846 48,786
-------- ------- -------
Long-term debt, excluding current
installments................................. $700,011 154,165 129,014
======== ======= =======
The 12 percent unsecured convertible promissory note was converted
into 100,000 shares of Series A preferred stock during 1995 and
subsequently converted to common stock in June 1996 (unaudited) (note
7).
The aggregate maturities of long-term debt for each of the four years
subsequent to June 30, 1996, are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------------
1996 $ 23,635
1997 51,916
1998 58,791
1999 43,458
----------------
$177,800
================
F-11
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(6) INCOME TAXES
For the period from November 13, 1990 (inception) to June 30, 1996,
the operations of the Company generated net operating losses of
approximately $3,577,015 (unaudited) for financial reporting purposes.
Because the Company is in the development stage, all costs through
1995 have been capitalized for tax purposes. The only loss reported
for tax has been a $14,280 capital loss on the sale of real property
in 1992. This capital loss may be carried forward by the Company for
up to five years and will expire at the end of 1997. Capital losses
carried forward may only be used to offset future capital gains. The
gross amount of the deferred tax asset as of June 30, 1996 was
approximately $1,288,000 (unaudited), which consists primarily of
capital loss carryforwards, start-up costs, and research and
experimental costs capitalized for tax purposes. Since realization of
these tax benefits are not assured, a valuation allowance has been
recorded against the entire deferred tax asset balance. In addition,
pursuant to the Tax Reform Act of 1986, if certain substantial changes
in ownership should occur there would be an annual limitation on the
amount of tax attribute carryforwards which can be utilized in the
future.
(7) STOCKHOLDERS' DEFICIT
(A) "SERIES A" PREFERRED STOCK
In April 1995, the Company issued 490,000 shares of 12 percent
cumulative convertible redeemable preferred stock (the "Series
A") as part of a second private placement at an offering price of
$5 per share. The issuance raised $1,950,000 in cash and
converted the $500,000 unsecured convertible promissory note (see
note 5) into Series A shares.
On April 27, 1996, the board of directors of the Company approved
the early redemption of all of the Series A preferred stock
outstanding as of May 31, 1996, at the redemption price of $5 per
share plus the aggregate amount of dividends accrued through June
30, 1996 in the amount of $346,269 (unaudited) and a conversion
expense of 12% in the amount of $344,631 (unaudited). In June
1996, 100% of Series A shareholders exercised their right to
convert all of their preferred shares together with their
dividends in the amount of $743,164 into common shares
(unaudited).
(B) "FIRST SERIES" PREFERRED STOCK
In the fourth quarter of 1993, the Company issued 580,000 shares
of 12 percent cumulative convertible redeemable preferred stock
(the "First Series") in a private placement.
On May 30, 1995, the board of directors of the Company approved
the redemption of all of the First Series preferred stock
outstanding as of June 30, 1995, at the redemption price of $1
per share plus dividends accrued through June 30, 1995, subject
to the preferred shareholders' prior right to convert such
preferred stock into common stock of the Company. In June 1995,
100% of the First Series with cumulative dividends thereon was
converted into common stock, on a one for one basis.
F-12
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(C) CONVERTIBLE NOTE PAYABLE (UNAUDITED)
In May 1996, the Company converted a $100,000 note payable into
common stock at a price of $5 per share pursuant to an amendment
to the note signed in January of 1996.
(D) COMMON STOCK
In November 1990, the Company issued 2,000,000 shares of common
stock with a par value of $0.001 per share to the President of
the Company for the President's assignment to the Company of all
ongoing research and development and the rights to any related
patents and patents pending, in addition to real estate and
equipment with an aggregate fair value of $52,000 as part of the
formation of the Company.
(8) COMMITMENTS
(A) LEASES
The Company leases operating facilities under fixed rent
operating leases. The facilities had a 24 month lease expiring
December 31, 1994 with a rent of $4,631 per month. The lease was
renewed under cancelable terms in October 1994 for an additional
two-year period at a monthly rent of $5,094. During 1994, the
Company leased equipment under an operating lease which expired
in September 1995.
Total rent expense was as follows:
For the six months ended
June 30, 1996 (unaudited) $ 30,564
For the year ended December 31:
1995 $ 61,128
1994 55,572
1993 39,740
1992 24,835
From November 13 1990
(inception) to December 31, 1991. 14,540
(B) DUE TO OFFICER
In 1995, the Board of Directors of the Company declared an
incentive bonus payable to the President, Pierre G. Mansur in the
amount of $267,460. Payment of bonuses are subject to the
determination by the Board of Directors that the Company is able
to effectuate such payment without impeding the Company's
operations or development. As a result, $88,110 has been paid and
an amount of $179,350 has been accrued at December 31, 1995 and
June 30, 1996 (unaudited).
F-13
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(C) SUPPLY AGREEMENT (unaudited)
On May 7, 1996, the Company entered into an agreement (the
"Supply Agreement" ) with a supplier (the "Supplier") pursuant to
which the Supplier agreed to supply to the Company, at the
Company's election, between 3,000 and 5,000 machine units per
year at established prices and in accordance with a delivery
schedule. The Company has agreed to pay $150,000 (the "Advance"),
$50,000 of which has been advanced through June 30, 1996. The
total Advance may be credited against future purchases under the
Supply Agreement at the rate of $50 per unit.
The Supply Agreement provides that the Company may unilaterally
terminate the contract in whole or in part for cause or for
convenience. In the event the Supply Agreement is terminated by
the Company for convenience, the Supplier will be entitled to
reimbursement of the costs it has incurred through the date of
termination and, if such termination occurs prior to the delivery
of 3,000 units, the Supplier will be entitled to payment for
units produced through the date of termination and retain any
unapplied amount of the Advance.
(9) PRODUCT FINANCING AGREEMENT (unaudited)
In May 1996, the Company entered into an agreement (the "Product
Financing Agreement") with a leasing company which agrees to
purchase machines produced by the Company and subsequently lease
these machines to customers on 60 month terms. The Company will
market the machines and provide the leasing company with credit
information on potential customers which they may either accept or
reject. The Product Financing Agreement states that the leasing
company does not have recourse against the Company for customer
failures to discharge their obligations to the leasing company
unless the Company has breached and failed to cure certain
warranties.
Under the Product Financing Agreement, the Company has agreed to
provide periodic service for the machines and replace solvent used
in the machines. In addition, upon the leasing company's request,
the Company agrees to assist the leasing company in remarketing any
repossessed or surrendered equipment for a fee. At the end of each
customer lease, the Company has the option to purchase the machine
from the leasing company at its fair market value.
F-14
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary..........................................................
Risk Factors................................................................
Use of Proceeds.............................................................
Dilution ...................................................................
Dividend Policy.............................................................
Capitalization..............................................................
Selected Financial Data.....................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................
Business ...................................................................
Management..................................................................
Executive Compensation......................................................
Certain Transactions........................................................
Principal Shareholders......................................................
Description of Capital Stock................................................
Shares Eligible for Future Sale.............................................
Underwriting................................................................
Legal Matters...............................................................
Experts ...................................................................
Additional Information......................................................
Index to Financial Statements............................................... F-1
----------------------
UNTIL ____________ , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
850,000 SHARES
MASUR INDUSTRIES INC.
COMMON STOCK
PROSPECTUS
FIRST ALLIED
SECURITIES INC.
____________ , 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JULY 23, 1996
150,000 SHARES
MANSUR INDUSTRIES INC.
COMMON STOCK
The shares of Common Stock, $.001 par value ("Common Stock"), offered
hereby are issuable by Mansur Industries Inc. (the "Company") upon conversion of
$1,012,500 in principal amount of its convertible notes due 1997 (the
"Convertible Notes"), at a conversion price of $6.75 per share. Concurrently
herewith, the Company is offering 850,000 shares of the Common Stock at an
initial offering price of $ in an underwritten initial public offering (the
"Concurrent Offering"). On the date of this Prospectus, a registration statement
with respect to the shares offered in the Concurrent Offering was declared
effective. Prior to the Concurrent Offering there was no public market for the
Common Stock and there can be no assurance that any such market will develop or
be sustained. For information regarding the factors considered in determining
the initial public offering price in the Concurrent Offering, see "Risk
Factors." The Common Stock will be included in the Nasdaq Small Cap Market under
the symbol "MANS." The shares of Common Stock offered by this Prospectus will be
subject to an agreement by the holders thereof with the Representative of the
Underwriters in the Concurrent Offering (the "Representative") restricting the
sale thereof within the 13 months from the date of this Prospectus without the
prior written consent of the Representative. See "Concurrent Offering,"
"Description of Securities," and "Plan of Distribution."
As a result of the conversion of the Convertible Notes and the issuance
of shares of Common Stock hereby, $1,012,500 of the Company's indebtedness will
be extinguished. The Company will receive none of the proceeds of the sale of
the shares of Common Stock issued hereby by the holders thereof. The Company
will bear all of the expenses of this offering, and will pay to the
Representative commissions and fees in an aggregate amount of $131,625 in
connection with services provided in connection with the Convertible Notes.
--------------------
SEE "RISK FACTORS" ON PAGES 5 TO 10 FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
July __, 1996
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES (I) THAT THE CONCURRENT OFFERING HAS BEEN CONSUMMATED AT AN
ASSUMED INITIAL OFFERING PRICE OF $7.50 PER SHARE (II) THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IN THE CONCURRENT OFFERING (THE "OVER-ALLOTMENT OPTION")
TO PURCHASE UP TO 127,500 SHARES OF COMMON STOCK HAS NOT BEEN EXERCISED, AND
(III) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 85,000 SHARES OF COMMON
STOCK HAVE NOT BEEN EXERCISED.
THE COMPANY
GENERAL
Mansur Industries Inc. (the "Company") has developed and obtained
patent protection with respect to a full line of self-contained, recycling
industrial parts washers that incorporate innovative, proprietary waste
minimization technologies and represent a significant advance over currently
available machinery and processes. Focusing on waste minimization rather than
its removal and recovery, the Company believes that its equipment will have a
major impact on the industrial parts cleaning industry and will have a broad
appeal to customers, because its equipment, unlike the machines now in use,
facilitates efficient and economical compliance with environmental regulations,
minimizes waste disposal requirements, enhances cleaning solution utilization,
and increases worker safety and productivity.
Most machinery and equipment require oil lubrication to function
properly. Removal of lubrication oils from tools and parts during automotive,
aviation, marine and general industrial maintenance, service and repair
operations is typically effected through the use of mineral spirit solvents
which become contaminated in the cleaning process. Under the most common current
practice, the solvent becomes more contaminated (and less effective) with
repeated use, and, when it is saturated with oil, sludge and other contaminants
as a result of the cleaning process (and frequently classified as a hazardous
waste under federal and state regulations), it must be stored on site until
pick-up, when pure solvent is delivered and the contaminated solvent is,
generally, shipped to regional refining facilities. This off-site recycling
program is typically scheduled on four to sixteen week cycles and involves both
the utilization of progressively more contaminated solvent for cleaning
operations until the solvent is too contaminated for use, and thereafter, the
on-site storage of the hazardous solution until the periodic waste recovery
service. By contrast, the Company's products allow the use and re-use of the
solvent by removing all the contaminants from the solvent within the cleaning
unit itself, minimizing the volume of waste by-product and providing pure
solvent to the customer on demand, without the costly and dangerous storage and
transportation of hazardous waste. Moreover, the small amount of waste
by-product yielded in the distillation process utilized by the Company's
products can typically be recycled and/or disposed of together with the
customer's used motor oil, which is generally not classified as a hazardous
waste. Substantially all of the Company's target customers have established
systems for the handling, transportation, recycling and disposal of used motor
oil. The Company's products have been extensively tested and proven effective by
independent engineering concerns and testing laboratories.
While the Company intends to exploit its current full line of
industrial washers, and to continue its research and development of new
products, it has initially focused its attention on its General Parts Washer,
marketed as SystemOne(Trademark) (the "SystemOne(Trademark) Washer"). The
SystemOne(Trademark) Washer consists of a washing sink mounted on top of a metal
cabinet in which the distillation and recovery apparatus is contained. The
equipment allows the solvent to be used, treated and re-used, on demand, without
requiring off-site processing. The Company has concluded extensive testing by
independent laboratories and at various commercial sites and is currently
conducting test marketing in a local area within close proximity to its
facilities. Demonstrator models were placed in 38 selected automotive repair
facilities of national, fleet, industrial and commercial accounts.
Notwithstanding the absence of a formal marketing program during
- 1 -
the test period, the Company has, as of the date of this Prospectus, received
orders from a number of facilities in which the machines were placed, including
Florida Detroit Diesel MTU (46 Units); Kelly Tractor Company and Pantropic Power
Products, South Florida Caterpillar dealers (48 Units); United States Postal
Service (2 Units); Southern Sanitation, a subsidiary of Waste Management, Inc.
(5 Units); Broward County Mass Transit (25 Units); and a number of South Florida
automobile dealerships (an aggregate of 54 Units). The Company commenced
commercial sales and delivery of units in July 1996 at an approximate price per
unit of $2,700.
The initial market for the Company's industrial cleaning product line
includes automotive, aviation, marine and general industrial maintenance,
service and repair operations. The Company believes that domestic expenditures
in connection with industrial parts cleaning machines exceeds $1.0 billion
annually, and that the anticipated monthly cost to the customer for the
Company's products typically will not exceed, and is intended to be well below,
the monthly cost of the non-recycling machines now in use. Additional
competitive advantages provided by the Company's products include practical and
cost effective compliance with demanding regulations of the Environmental
Protection Agency; elimination of routine waste disposal costs; significant
improvements in cleaning productivity; minimized cleaning solution purchases;
and reduction of equipment down time for routine machine maintenance.
The Company has retained experienced executives to head and develop its
sales and marketing organization. In addition to its regional office in Miami,
the Company expects to open four additional service centers in Orlando, Tampa,
Jacksonville and West Palm Beach, Florida during 1996. The Company expects to
pursue a national expansion program, through internal growth utilizing a network
of regional distribution and service centers, as in Florida, through a strategic
alliance with a national distributor, if one is available on favorable terms, or
through a combination of the two. In August, the Company will commence a pilot
program with First Recovery and Valvoline Oil Company, two affiliates of Ashland
Inc., a multinational oil refiner and distributor of automotive related
products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of
mineral spirits solvent used in the Company's SystemOne(Trademark) Washer. Under
the pilot program, First Recovery will be the exclusive distributor of the
SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The
initial term of the program is one year. If the arrangement proves successful,
the Company expects to negotiate a broader agreement, possibly including a
national distribution program.
The Company has manufactured all its prototype and test models at its
10,000 square foot research and development ("R&D") facility. The Company's
current manufacturing capabilities include advanced Computer Aided
Design/Computer Aided Manufacturing technology and state of the art
manufacturing machinery. Because the Company's R&D facility can be utilized to
manufacture up to 200 units of the SystemOne(Trademark) Washer per month, all
manufacturing operations, including design, metal fabrication, robotic welding,
painting and assembly, can be performed in the Company's R&D facility during the
Company's initial roll-out phase. At present, the Company plans to continue to
use its own facility for existing and new product R&D activities and to use
contract manufacturers when a product achieves commercial sales levels. In order
to accommodate increased demand for the SystemOne(Trademark) Washer, the Company
has entered into an agreement with a contract manufacturer with respect to the
manufacture of at least 3,000 units during the first year thereof. In addition,
the Company has entered into negotiations with a major contract manufacturer
with a 2 million square foot facility and 75 years of experience to provide the
manufacturing capacity needed to meet anticipated future customer demand.
- 2 -
THE OFFERING
Common Stock Offered.......................................... 150,000 shares
Common Stock Outstanding After Offering....................... 4,351,309(1)
Use of Proceeds by the Company................................ The Company utilized the proceeds of the
private financing pursuant to which the
Convertible Notes were issued to finance the
Concurrent Offering and for general
corporate purposes. The Company will not
receive any of the proceeds from the sale by
the holders thereof of the shares of
Common Stock issued pursuant to this
Prospectus.
Risk Factors.................................................. This offering involves a high degree of risk
and immediate substantial dilution. See
"Risk Factors" and "Dilution."
Nasdaq SmallCap Symbol........................................ MANS
<FN>
- --------------------
(1) Does not include an aggregate of 375,000 shares of Common Stock reserved for issuance upon exercise of options available
for future grant and future restricted stock awards under the Company's Incentive Compensation Plan. See "Underwriting" and
"Management--Incentive Compensation Plans."
</FN>
The Company will furnish its shareholders with annual reports containing
audited financial statements certified by an independent auditing firm.
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement filed under
the Securities Act with respect to a concurrent underwritten public offering by
the Company of 850,000 shares of Common Stock, and up to 127,500 additional
shares of Common Stock to cover over-allotments, if any, was declared effective
by the Securities and Exchange Commission (the "Concurrent Offering"). The
Company received net proceeds of approximately $________ from the sale of those
shares, and will receive approximately $________ in additional net proceeds if
the over-allotment option is exercised in full, after payment of underwriting
discounts and commissions and estimated expenses of the Concurrent Offering.
Mansur Industries Inc. was incorporated in Florida in 1990. The
Company's principal executive office is located at 8425 S.W. 129th Terrace,
Miami, Florida 33156, and its telephone number is (305) 232-6768.
- 3 -
Summary Financial Data
The summary financial information set forth below should be read in
conjunction with financial statements appearing elsewhere in this Prospectus.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- ----------------------
1991(1) 1992 1993 1994 1995 1995 1996
---------- --------- --------- ----------- ----------- --------- ----------
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative.... $ 8,502 $ 8,971 $ 81,886 $ 268,414 $ 907,393 $ 418,079 $ 622,641
Research and development...... 128,439 31,924 69,256 178,146 393,874 162,732 365,435
---------- --------- --------- ----------- ----------- --------- ----------
Total operating expenses.... 136,941 40,895 151,142 446,560 1,301,267 580,811 988,076
---------- --------- --------- ----------- ----------- --------- ----------
Interest (expense), net.......... -- (16,299) (16,360) (46,312) (17,878) (26,462) (13,094)
Conversion (expense) on
redeemable preferred stock.... -- -- -- -- -- -- (344,631)
Loss on disposition of property and
equipment..................... -- (39,560) (18,000) -- -- -- --
---------- --------- --------- ----------- ----------- --------- ----------
Net (loss)....................... (136,941) (96,754) (185,502) (492,872) (1,319,145) (607,273) (1,345,801)
Dividends on redeemable preferred
stock......................... -- -- (8,328) (53,929) (222,067) (75,066) (147,000)
---------- --------- --------- ----------- ----------- --------- ----------
Net (loss) to common shares...... $(136,941) $(96,754) $(193,830) $(546,801) $(1,541,212) $(682,339) $(1,492,801)
========== ========= ========= =========== =========== ========= ==========
Net (loss) per common share(2)... $(0.07) $(0.05) $(0.10) $(0.27) $(0.66) $(0.34) $(0.53)
========== ========= ========= =========== =========== ========= ==========
Weighted average shares
outstanding(2)................ 2,000,000 2,000,000 2,000,000 2,000,000 2,335,140 2,000,000 2,799,071
JUNE 30, 1996
---------------------------------
ACTUAL AS ADJUSTED(3)
---------------- --------------
BALANCE SHEET DATA:
Working capital.......................... $(216,966) $5,921,034
Total assets............................. 1,562,712 6,628,212
Total liabilities........................ 1,575,428 502,928
Total stockholders' equity (deficit)..... (12,716) 6,125,284
- --------------------------
(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) Adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as a
result of the conversion of the Convertible Notes; and (ii) the sale of
850,000 shares of Common Stock offered in the Concurrent Offering at an
assumed initial public offering price of $7.50 per share and the initial
application of the estimated net proceeds therefrom. See "Capitalization"
and "Use of Proceeds of Concurrent Offering."
- 4 -
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT DECISION.
LIMITED OPERATING HISTORY; SIGNIFICANT AND CONTINUING LOSSES. The
Company was formed in November 1990 and was a development stage company through
June 30, 1996. It has only recently commenced the marketing and sale of one of
its product lines on a limited basis, and has a limited operating history upon
which an evaluation of the Company's performance and prospects can be made. The
Company's prospects must be considered in light of the numerous risks, expenses,
delays, problems and difficulties frequently encountered in the establishment of
a new business in an industry characterized by vigorous competition and
regulatory requirements. Since inception, the Company has incurred significant
losses, including losses of $492,872 and $1,319,145, for the years ended
December 31, 1994 and 1995, respectively, and a loss of $1,345,801 for the six
months ended June 30, 1996. Losses are continuing through the date of this
Prospectus. Inasmuch as the Company's operating expenses have increased and can
be expected to continue to increase significantly in connection with the
Company's proposed expansion, including the development of manufacturing
capabilities, the development and establishment of regional sales, service and
technological support centers and a service fleet, the development of a larger
corporate headquarters and research and development facility, and the purchase
of raw materials and inventory, the Company anticipates that losses and negative
operating cash flow will continue until such time, if ever, as the Company is
able to generate sufficient revenues to offset its operating costs and the costs
of continuing expansion. There can be no assurance that the Company will
generate significant revenues or ever achieve profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
UNCERTAINTY OF MARKET ACCEPTANCE. To date, the Company's products have
been marketed in limited geographic areas and, thus, have achieved only limited
market acceptance. The Company is attempting to market a new product which
relies on a fundamental change in the way parts and tools are cleaned and
solvent utilized, an activity pattern which has been relatively consistent
within the target industries in the past. As is typically the case with an
emerging business concept, demand and market acceptance for newly introduced
products and services are subject to a high level of uncertainty. The Company
has limited marketing experience and limited financial, marketing, personnel and
other resources to undertake extensive marketing activities. The Company's
success will be largely dependent on the Company's ability to position its
products as a preferred method for cleaning parts. The Company believes that
substantially all its target customers currently utilize competitive parts
cleaning equipment. Potential customers may elect to utilize devices or methods
with which they are more familiar or which they believe to be more efficient or
have other advantages over the Company's system. Accordingly, achieving market
acceptance for the Company's products will require substantial marketing efforts
and expenditure of significant funds to educate automotive dealership and repair
facilities and other potential users of the products of the distinctive
characteristics and benefits of the Company's products as well as their
environmental and cost savings advantages. There can be no assurance that the
Company's efforts will result in significant initial or continued market
acceptance for the Company's products or that the Company will succeed in
positioning its products as a preferred method for cleaning parts. See
"Business-Marketing and Servicing Strategy."
INDUSTRY COMPETITION. The parts cleaning industry is characterized by
intense competition, and the industry is dominated by Safety-Kleen, Inc. A
number of other companies provide parts cleaning equipment and services. While
the Company believes that none of its competitors offer a product with the same
features as the Company's products, many customers may view the products as
functionally equivalent, and there can be no assurance that functionally
equivalent products will not become available in the near future. In addition,
there are numerous companies involved in the waste management industry,
including waste hauling companies and companies engaged in waste separation,
recovery and recycling, which may have
- 5 -
the expertise and resources that would encourage them to attempt to develop and
market products which would compete with the Company's products or render them
obsolete or less marketable. Safety-Kleen, Inc., as well as most of the
companies marketing such waste disposal services or products or with the
potential to do so, are well established, have substantially greater financial
and other resources than the Company, and have established reputations relating
to product design, development, marketing and support. There can be no assurance
that the Company's financial performance and prospects will not be negatively
affected if Safety-Kleen, Inc. materially lowers the price to customers of its
parts washers, or that the Company will be able to compete successfully. See
"Business-Competition."
RISKS ASSOCIATED WITH RAPID EXPANSION. The Company has achieved limited
growth to date and has limited experience in effectuating rapid expansion or in
managing operations which are geographically dispersed. Expansion of the
Company's operations will be dependent on, among other things, the Company's
ability to achieve significant market acceptance for its products, successfully
locate, establish and operate Service Centers, hire and retain skilled
management, marketing, technical and other personnel, secure adequate sources of
supply on a timely basis and on commercially reasonable terms, successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective quality controls), and maintain a third party leasing
program capable of financing the customer's acquisition of the Company's
products in a timely manner. To date, a substantial portion of the Company's
products have been installed on a test basis in automotive dealership and repair
facilities concentrated in limited geographic markets near the Company's
headquarters. The Company's growth prospects will be largely dependent upon its
ability to achieve greater penetration in these markets as well as significant
penetration in new geographic markets. The Company's prospects could be
adversely affected by declines in the automotive sales, maintenance or service
industries or the economy generally, which could result in reduction or deferral
of capital expenditures by prospective customers. The Company's future growth
will also be dependent upon the Company's ability to achieve a sufficient
installed base of its products. The Company may also seek to expand its
operations through the acquisition of existing companies with customer bases
that would appear to have needs for the Company's product line. There can be no
assurance that the Company will be able to successfully expand its operations.
See "Business-Marketing and Servicing Strategy."
DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION;
POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company's capital requirements have
been and will continue to be significant. The Company is dependent on and
intends to use a substantial portion of the proceeds of the Concurrent Offering
to implement its proposed expansion. The Company anticipates, based on currently
proposed plans and assumptions relating to its operations (including the
anticipated costs associated with, and timetable for, its proposed expansion),
that the proceeds of this offering, together with cash flow from operations,
will be sufficient to satisfy its contemplated cash requirements for at least 12
months following the consummation of this offering. In the event that the
Company's plans change, its third party lease financing arrangement does not
function as anticipated, its assumptions change or prove to be inaccurate or if
the proceeds of this offering or cash flow otherwise prove to be insufficient to
fund expansion (due to unanticipated expenses, delays, problems, difficulties or
otherwise), the Company has plans to restructure its operations to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. The Company has no current arrangements with respect to, or sources
of, additional financing and there can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all.
Although the Company believes that available third party lease financing may
help offset the Company's cost structure for product rollout, a significant
level of demand for the Company's products will, in all likelihood, initially
result in significant up-front capital expenditures without corresponding cash
flow. Any additional equity financing may involve dilution to the interests of
the Company's then existing shareholders. If adequate funds are not available
from additional sources of financing, the Company's business may be materially
adversely affected. See "Use of Proceeds."
RISKS ASSOCIATED WITH PRODUCT FINANCING. The Company has entered into
a third party lease financing arrangement with Oakmont Financial Services
("Oakmont"), pursuant to which Oakmont has
- 6 -
agreed to provide third party leasing services. If the Company breaches certain
warranties, Oakmont has the right to require the Company to repurchase the
leased unit from Oakmont. To the extent that the Company is required to use a
portion of the proceeds of the Concurrent Offering to repurchase units from
Oakmont, the Company will have less resources available to it for other
purposes. Oakmont has the right to review the creditworthiness of proposed
lessees and to withhold financing on the basis of its credit review. While the
Company may terminate its agreement with Oakmont if Oakmont consistently refuses
to approve the credit of the Company's proposed lessees, any such termination,
in the absence of alternative financing programs, could have a material adverse
effect on the Company. The Company is not likely to utilize third party
financing with respect to units leased under its pilot marketing program with
First Recovery and Valvoline Oil Company, but will, instead, use a portion of
the proceeds of the Concurrent Offering. See "Use of Proceeds of Concurrent
Offering" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON ENVIRONMENTAL LEGISLATION. In recent years, government
authorities have adopted extensive regulations regulating the storage, handling,
shipment, recycling and/or disposal of hazardous waste, including contaminated
solvent used in industrial parts washers. The Company believes that continuing
initiatives of federal, state and local government authorities and increasing
storage and hauling costs and disposal fees will create incentives for customers
to use the Company's products. Failure by government authorities to continue to
implement such legislation or significant relaxation of such requirements or
enforcement thereof could have a material adverse effect on the Company's
business and prospects. Moreover, while the Company believes that its process
results in pure solvent and a residue that is not classified as hazardous waste,
but may, rather, be disposed of or utilized as used motor oil, there can be no
assurance that environmental agencies will reach the same conclusion. If the
residue is classified as hazardous waste, or if used motor oil itself is
classified as hazardous waste, the Company will lose a significant competitive
advantage. The Company believes that certain of its competitors have attempted
and are continuing their efforts to have used motor oil classified as a
hazardous waste. See "Business-Industry Overview" and "Risk Factors -- Potential
Warranty Expense and Product Liability."
DEPENDENCE ON THIRD-PARTY MANUFACTURING ARRANGEMENTS. The Company will
be dependent on third parties for its components and for the manufacture of a
large portion of its finished units. Although the Company has several
alternative manufacturing sources and believes that additional alternative
manufacturing sources are readily available, failure by its current
manufacturers to continue to supply the Company on commercially reasonable
terms, or at all, in the absence of readily available alternative sources, would
have a material adverse effect on the Company. The Company is substantially
dependent on the ability of its manufacturers, among other things, to satisfy
performance and quality specifications and dedicate sufficient production
capacity for components within scheduled delivery times. See
"Business-Manufacturing and Supply."
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION. The Company holds four
United States patents and has four United States patents pending with respect to
the Company's products. Two of the five pending patents have been allowed by the
U.S. Patent Office and are awaiting issuance. Other parts washing machines which
may not be covered by the Company's patents are currently in commercial
distribution by the Company's competitors. The Company has applied for
international patents in Canada, Mexico, Europe and Japan and anticipates that
it will apply for additional patents as deemed appropriate. The Company believes
that patent protection is important to its business and that it could be
required to expend significant funds in connection with enforcing or defending
its patent rights. There can be no assurance as to the breadth or degree of
protection which existing or future patents, if any, may afford the Company,
that any unissued patent applications will result in issued patents or that
patents will not be circumvented or invalidated. It is possible that the
Company's existing patent rights may not be valid although the Company believes
that neither its products nor processes now infringe or will infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or proprietary rights of others may occur. In the
event that the Company's products or processes infringe
- 7 -
patents or proprietary rights of others, the Company may be required to modify
the design or obtain a license. There can be no assurance that the Company will
be able to do so in a timely manner, upon acceptable terms and conditions or at
all. Failure to do any of the foregoing could have a material adverse effect on
the Company. In addition, there can be no assurance that the Company will have
the financial or other resources necessary to enforce or defend a patent
infringement, proprietary rights violation action or alleged infringement or
violation action. Moreover, if the Company's products or processes infringe
patents or propriety rights of others, the Company could, under certain
circumstances, become the subject of an immediate injunction and be liable for
damages, which could have a material adverse effect on the Company. See
"Business -Patents, Trademarks and Proprietary Technology."
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such agreements will adequately protect
the Company's trade secrets. Since the Company believes that its proprietary
information is important to its business, failure to protect such information
could have a material adverse effect on the Company. See "Business-Patents,
Trademarks and Proprietary Information."
POTENTIAL WARRANTY EXPENSE AND PRODUCT LIABILITY. The Company
unconditionally warrants its products to be free of material defects for 60
months. In addition the Company warrants to users that if, for any reason, the
residue generated by its System One(Trademark) Washer cannot be recycled and/or
disposed of as used oil, the Company will pay for any required recovery and
disposal services. Accordingly, the Company could incur significant warranty
expenses as a result of defects in its products or a change in federal or state
regulations pertaining to the disposal of cleaning residue. Since the Company
only recently commenced its planned principal operations, the reserve account it
will establish for warranty expense will be derived without the benefit of
historical figures and actual warranty expenses could exceed the amount which
will be established as a reserve. The Company may also be exposed to potential
product liability claims by its customers and users of its products. The Company
maintains product liability insurance coverage of $5,000,000 in the aggregate
and $5,000,000 per occurrence. The Company believes such insurance provides
adequate coverage for the types of products currently marketed by the Company.
There can be no assurance, however, that such insurance will be sufficient to
cover potential claims or that an adequate level of coverage will be available
in the future at a reasonable cost. A partially insured or completely uninsured
successful claim against the Company could have a material adverse effect on the
Company. See "Business-Sales Financing and Service Programs" and "-Product
Liability and Insurance."
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the personal efforts of Pierre Mansur, its Chairman of the Board
and President and the inventor of the Company's products, Paul Mansur, its Chief
Executive Officer, and other key personnel. Although the Company has entered
into employment agreements with Pierre Mansur and Paul Mansur which expire in
September 1997, the loss of the services of either of such individuals or
certain other key employees, could have a material adverse effect on the
Company's business and prospects. The Company has obtained and is the sole
beneficiary of "key-man" life insurance on Pierre Mansur and Paul Mansur each in
the amount of $1,000,000. The success of the Company is also dependent upon its
ability to hire and retain additional qualified marketing, technical and other
personnel. There can be no assurance that the Company will be able to hire or
retain such personnel. See "Management."
CONTROL BY MANAGEMENT. After consummation of this offering and the
Concurrent Offering, Pierre Mansur will beneficially own approximately 46% of
the Company's outstanding Common Stock. Accordingly, Pierre Mansur will be in a
position to effectively control the Company, including the election of all of
the directors of the Company. See "Management" and "Principal Shareholders."
- 8 -
BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO
RELATED PARTIES. Approximately $572,000 (11%) of the estimated net proceeds from
the Concurrent Offering has been allocated to working capital and general
corporate purposes. Accordingly, the Company's management will have broad
discretion as to the application of such proceeds. In addition, the Company may
use a portion of the net proceeds allocated to working capital to pay salaries
and benefits of executive officers over the 12 months following the consummation
of this offering to the extent cash flow is insufficient for such purpose. See
"Use of Proceeds of Concurrent Offering."
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to
the Concurrent Offering, there has been no public market for the Common Stock,
and no assurance can be given that an active trading market will develop or be
sustained after this offering. Since there has been no trading market, the
initial public offering price of the Common Stock and the conversion price of
the Convertible Notes may not bear any relationship to the actual value of the
Common Stock. The initial public offering price was established by negotiations
between the Company and the Representative, is not necessarily related to the
Company's asset value, net worth or other established criteria of value, and may
not be indicative of prices that will prevail in the trading market. The stock
market has experienced significant price and volume fluctuations that are often
unrelated to the operating performance of particular companies. The market price
of the Common Stock, similar to that of securities of other development stage
companies, is likely to be highly volatile. Factors such as the results of
studies and trials by the Company or its competitors, other evidence of the
efficacy of products of the Company or its competitors, announcements of
technological innovations or new products by the Company or its competitors,
changes in governmental regulation, developments in patent or other proprietary
rights of the Company or its competitors, including litigation, fluctuations in
the Company's operating results and changes in general market conditions could
have a significant impact on the future price of the Common Stock. See
"Underwriting."
EFFECTIVE OF ANTI-TAKEOVER LEGISLATION; POSSIBLE ADVERSE EFFECT OF
ISSUANCE OF PREFERRED STOCK ON MARKET PRICE AND RIGHTS OF COMMON STOCK. The
State of Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not posses any
voting rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires supermajority approval by disinterested directors or
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). The Company's Articles of Incorporation authorize the
issuance of 1,500,000 shares of "blank check" Preferred Stock ("Preferred
Stock") with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. The issuance of
any series of Preferred Stock having rights superior to those of the Common
Stock may result in a decrease in the value or market price of the Common Stock.
Holders of Preferred Stock to be issued in the future may have the right to
receive dividends and certain preferences in liquidation and conversion rights.
The issuance of such Preferred Stock could make the possible takeover of the
Company or the removal of management of the Company more difficult, discourage
hostile bids for control of the Company in which shareholders may receive
premiums for their Common Stock and adversely affect the voting and other rights
of the holders of the Common Stock. The Company may in the future issue
additional shares of its Preferred Stock. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. As of the date of
this Prospectus, 4,351,309 shares of Common Stock are issued and outstanding. Of
such shares, 1,000,000 shares are freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless held by an "affiliate" of the Company. The remaining
3,351,309 shares of Common Stock are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Of such shares,
2,656,729 shares are currently eligible for sale under Rule 144 and the
remainder will become eligible
- 9 -
for sale under Rule 144 at various times prior to June 1998. No prediction can
be made as to the effect, if any, that sales or shares of Common Stock or the
availability of such shares for sale will have on the market prices prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Shares Eligible
for Future Sale."
DIVIDENDS. The Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. See "Dividend Policy."
DILUTION. The conversion price of $6.75 is substantially higher than
the net tangible book value per share of Common Stock. Investors purchasing
shares of Common Stock in this offering will incur immediate and substantial
dilution of approximately $5.35 per share of Common Stock from the conversion
price. See "Dilution."
INEXPERIENCE OF REPRESENTATIVE. The Representative commenced operations
in 1994 and does not have extensive experience as an underwriter of public
offerings of securities. The Representative has acted as the managing
underwriter for three public offerings. The Representative is a relatively small
firm and no assurance can be given that the Representative will participate as a
market maker in the Common Stock. See "Underwriting."
FORWARD -- LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding, among other items (i) the Company's growth
strategies, (ii) the impact of the Company's products and anticipated trends in
the Company's business, and (iii) the Company's ability to enter into contracts
with certain suppliers and strategic partners. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the Company's control.
Actual results could differ materially from these forward-looking statements as
a result of the factors described herein, including, among others, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire or prove to be accurate.
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement filed under
the Securities Act with respect to a concurrent underwritten public offering by
the Company of 850,000 shares of Common Stock, and up to 127,500 additional
shares of Common Stock to cover over-allotments, if any, was declared effective
by the Securities and Exchange Commission (the "Concurrent Offering"). The
Company received net proceeds of approximately $________ from the sale of those
shares, and will receive approximately $________ in additional net proceeds if
the over-allotment option is exercised in full, after payment of underwriting
discounts and commissions and estimated expenses of the Concurrent Offering.
- 10 -
USE OF PROCEEDS OF CONCURRENT OFFERING
The Company will receive no proceeds from the offering of shares under
the Prospectus. However, the conversion of the Convertible Notes will result in
the extinguishment of $1,012,500 of indebtedness. The net proceeds to be
received by the Company from the sale of the shares of Common Stock offered
pursuant to the Concurrent Offering are estimated to be approximately $5,271,750
based on an assumed initial public offering price of $7.50 per share
(approximately $6,103,688 if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.
APPROXIMATE
APPROXIMATE PERCENTAGE OF NET
APPLICATION OF PROCEEDS DOLLAR AMOUNT PROCEEDS
----------------------- ------------------- -----------------
Development of manufacturing capacity(1)............................. $ 750,000 14%
Development of marketing, sales and service centers and
service fleet(2)................................................ 1,250,000 24
Development of corporate headquarters and research and
development facilities(3)....................................... 700,000 13
Purchase of raw materials and inventory(4)........................... 2,000,000 38
Working capital and general corporate purposes....................... 571,750 11
---------
Total....................................................... $5,271,750 100%
========= ===
<FN>
- ---------------------------
(1) Represents the estimated cost of developing the Company's manufacturing
capabilities, primarily for research and development, testing and
initial pre-commercial manufacturing operations, including certain
property, plant and equipment costs, set-up costs, hard and soft
tooling costs and custom mold development costs over the next 12
months. See "Business - Manufacturing and Supply" and "--Research and
Development."
(2) Represents the estimated cost of developing sales, service and technological
support centers and a fleet of service vehicles throughout Florida and the
eastern United States over the next 12 months. See "Business - Marketing
and Servicing Strategy."
(3) Represents the estimated cost of developing a larger corporate headquarters
and research and development facility, including the cost of a client server
computer system, over the next 12 months. See "Business - Research and
Development."
(4) Represents the estimated cost of raw materials and finished goods
inventory that may be held by the Company, as well as the cost of units
provided under its pilot marketing program with First Recovery and
Valvoline Oil Company for which the Company will not use third-party
financing.
</FN>
The foregoing represents the Company's best estimate of its allocation
of the net proceeds of the Concurrent Offering based upon the current status of
its business operations, its current plans, and current economic and industry
conditions. Future events, as well as changes in economic or competitive
conditions or the Company's business and the results of the Company's sales and
marketing activities may make shifts in the allocation of funds within or
between each of the items referred to above necessary or desirable.
If the Underwriters exercise the over-allotment option in full, the
Company will realize additional net proceeds of approximately $832,000 which
will be added to the Company's working capital.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that the proceeds of the Concurrent
Offering, together with projected cash flow from operations, will be sufficient
to satisfy its contemplated cash requirements for at least 12 months following
the consummation of this offering. In the event that the Company's plans change
or its assumptions change or prove to be inaccurate or if the proceeds of this
offering or cash flow prove to be insufficient (due to unanticipated expenses or
otherwise), the Company may be required to seek additional financing. There can
be no assurance that additional financing will be available to the Company on
commercially reasonable terms, or at all.
Proceeds not immediately required for the purposes described above will
be invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
- 11 -
DILUTION
The difference between the conversion price per share of Common Stock
and the pro forma net tangible book value per share after this offering
constitutes the dilution to holders of the Convertible Notes and recipients of
shares of Common Stock pursuant to this offering. Net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of outstanding
shares of Common Stock.
At June 30, 1996, the net tangible book value of the Company was
$(37,170), or $(.01) per share. After giving effect to the conversion of the
Convertible Notes into 150,000 shares of Common Stock, and assuming the sale of
850,000 shares of Common Stock offered in the Concurrent Offering at an assumed
initial public offering price of $7.50 per share and deducting underwriting
discounts and commissions and estimated expenses of that offering, the pro forma
net tangible book value of the Company as of June 30, 1996 would have been
$6,100,830, or $1.40 per share. This represents an immediate increase in net
tangible book value of $1.41 per share to the existing shareholders and an
immediate dilution of $5.35 per share to the holders of Convertible Notes. The
following table illustrates this dilution, on a per share basis:
Conversion price of Common Stock...................... $6.75
Net tangible book value before offering.......... $(.01)
Increase attributable to new investors........... 1.41
Pro forma net tangible book value after offering...... 1.40
----------
Total dilution to holders of Convertible Notes........ $5.35
If the Underwriters' over-allotment option is exercised in full, the pro forma
net tangible book value of the Company as of June 30, 1996 will be $6,932,768,
or $1.59 per share. This represents an immediate increase in net tangible book
value of $1.60 per share to the existing shareholders and an immediate dilution
of $5.15 per share to new investors.
The following table summarizes, as of June 30, 1996, the total number
of shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid by the existing shareholders and the
new investors.
PERCENT OF
SHARES PERCENT OF AGGREGATE TOTAL AVERAGE PRICE
PURCHASED TOTAL SHARES CONSIDERATION CONSIDERATION PER SHARE
------------- ------------ ---------------- ------------- -------------
Existing Shareholders............. 3,501,309 80.5% $4,142,500 39.4% $1.18
New Investors..................... 850,000 19.5% 6,375,000 60.6% $7.50
Total.......................... 4,351,309 100.0% 10,517,500 100.0%
============= ============ ================ =============
If the Underwriters' over-allotment option is exercised in full, the new
investors will have paid $7,331,250 for 977,500 shares of Common Stock,
representing 63.9% of the total consideration for 21.8% of the total number of
shares outstanding.
- 12 -
CAPITALIZATION
Set forth below is the capitalization of the Company at June 30, 1996,
and as adjusted to reflect the Company's issuance of 850,000 shares of Common
Stock in this offering at an assumed initial public offering price of $7.50 per
share and the automatic conversion of the Convertible Notes. See Note 5 of Notes
to Financial Statements.
JUNE 30, 1996
---------------------------------------------
ACTUAL AS ADJUSTED
--------------------- ---------------------
DEBT:
Short-term debt..................................................... $1,012,500 $ 0
Current installments of long-term debt.............................. 48,786 48,786
Long-term debt, excluding current installments...................... 129,014 129,014
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $1 par value; 1,500,000 shares authorized;
no shares issued and outstanding.......................... 0 0
Common Stock, $.001 par value; 25,000,000 shares
authorized; 3,351,309 and 4,351,309 shares issued and
outstanding, respectively................................. 3,351 4,351
Additional paid in capital.......................................... 3,560,948 9,697,948
Deficit accumulated during the development stage.................... 3,577,015 3,577,015
--------------------- ---------------------
Total stockholders' equity (deficit)........................... (12,716) 6,125,284
--------------------- ---------------------
Total capitalization................................................ $1,177,584 $6,303,084
===================== =====================
- 13 -
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
financial statements of the Company. The financial statements as of and for the
period from November 13, 1990 (inception) through December 31, 1991 and for the
years ended December 31, 1992, 1993, 1994 and 1995 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. In the opinion of
the Company, the financial information for each of the six month periods ended
June 30, 1995 and 1996, which is unaudited, includes all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary for
a fair presentation of its financial position and results of operations for
these periods. The statement of operations data for the six month period ended
June 30, 1996 is not necessarily indicative of the results of operations that
may be expected for the full year. The selected financial data presented below
should be read in conjunction with the Company's financial statements, related
notes, and other financial information contained in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- -----------------------
1991(1) 1992 1993 1994 1995 1995 1996
--------- --------- ---------- ---------- ---------- ---------- ---------
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative.. $ 8,502 $ 8,971 $81,886 $268,414 $ 907,393 $ 418,079 $ 622,641
Research and development.... 128,439 31,924 69,256 178,146 393,874 162,732 365,435
--------- --------- ---------- ---------- ---------- ---------- ---------
Total operating expenses.. 136,941 40,895 151,142 446,560 1,301,267 580,811 988,076
--------- --------- ---------- ---------- ---------- ---------- ---------
Interest (expense), net........ -- (16,299) (16,360) (46,312) (17,878) (26,462) (13,094)
Conversion (expense) on
redeemable preferred stock.. -- -- -- -- -- -- (344,631)
Loss on disposition of property
and equipment............... -- (39,560) (18,000) -- -- -- --
--------- --------- ---------- ---------- ---------- ---------- ---------
Net (loss)..................... (136,941) (96,754) (185,502) (492,872) (1,319,145) (607,273) (1,345,801)
Dividends on redeemable
preferred stock............. -- -- (8,328) (53,929) (222,067) (75,066) (147,000)
--------- --------- ---------- ---------- ---------- ---------- ---------
Net (loss) to common shares.... $(136,941) $(96,754) $(193,830) $(546,801) $(1,541,212) $(682,339) $(1,492,801)
========= ========= ========== ========== ========== ========== =========
Net (loss) per common share(2). $(0.07) $(0.05) $(0.10) $(0.27) $(0.66) $(0.34) $(0.53)
========= ========= ========== ========== ========== ========== =========
Weighted average shares
outstanding(2).............. 2,000,000 2,000,000 2,000,000 2,000,000 2,335,140 2,000,000 2,799,071
JUNE 30, 1996
--------------------------------
ACTUAL AS ADJUSTED(3)
--------------- --------------
BALANCE SHEET DATA:
Working capital........................... $(216,966) $5,921,034
Total assets.............................. 1,562,712 6,628,212
Total liabilities......................... 1,575,428 502,928
Stockholders' equity (deficit):
Total stockholders' equity (deficit)... (12,716) 6,125,284
- --------------------------
(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) Adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as
a result of the conversion of the Convertible Notes; and (ii) the sale of
850,000 shares of Common Stock offered in the Concurrent Offering at an
assumed initial public offering price of $7.50 per share and the initial
application of the estimated net proceeds therefrom. See "Capitalization"
and "Use of Proceeds of Concurrent Offering."
- 14 -
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 Prospectus.
GENERAL
Since its inception in November 1990 the Company has devoted
substantially all of its resources to research and development programs relating
to its full line of self contained, recycling industrial parts washers. The
Company was a development stage company through June 30, 1996, and commenced its
planned principal operations in July 1996. The Company has been unprofitable
since its inception and expects that it will incur significant additional losses
at least through December 31, 1996. From the period from inception through June
30, 1996, the Company incurred a cumulative net loss of $3,577,015. The Company
anticipates that it will incur losses until such time, if ever, as the Company
is able to generate sufficient revenues to offset its operating costs and the
costs of its continuing expansion. In light of the material uncertainties in
connection with the commencement of the Company's operations, the Company cannot
reasonably estimate the length of time before the Company may generate net
income, if ever.
The Company intends to make its SystemOne(Trademark) Washer and
services available to the public through a third party leasing program. The
Company will recognize the revenue from the sale of a machine at the time that
the equipment is delivered either to the third party lessor or directly by the
Company to the lessee. A portion of the revenue (currently estimated at 10% of
the sale price per machine) will be accounted for as deferred revenue, and
recognized as revenue in respect of the service portion of the agreement over
the term of the underlying lease. See "Business - Sales Financing and Servicing
Programs" for a description of the Product Financing Agreement the Company has
entered into with Oakmont Financial Services.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30,
1995.
The Company did not generate any revenues prior to June 30, 1996.
The Company's general and administrative expenses increased by $204,562
to $622,641 for the six months ended June 30, 1996 from $418,079 during the
comparable period in 1995. The increase is primarily attributable to the
Company's hiring of additional management, sales and marketing staff in
anticipation of the Company's commencement of its planned principal operations
and the Company's grant of an aggregate of 30,000 shares of Common Stock to
three directors of the Company in exchange for certain consulting services.
The Company's research and development expenses for the six months
ended June 30, 1995 and 1996 were $162,732 and $365,435, respectively. The 125%
increase is primarily a function of the Company's accelerated prototype
development during the latter period, as opposed to the basic and applied
research conducted during the prior period. During 1996, the Company
manufactured and shipped a number of SystemOne(TM) Washers to various facilities
to test market receptivity.
The Company's interest expenses for the six months ended June 30, 1995
and 1996 were $38,259 and $24,179, respectively. The Company's interest expense
in the six months ended June 30, 1996 decreased by 36% relative to the six
months ended June 30, 1995 due to a relative decrease in the indebtedness of the
Company. In the six months ended June 30, 1995 and 1996, the Company earned
interest income of $11,797 and $11,085 on cash deposits.
- 15 -
In the six months ended June 30, 1995, the Company incurred a
conversion expense of $344,631 in connection with its efforts to induce all the
holders of the Company's Series A Preferred Stock to convert their Series A
Preferred Stock to Common Stock.
As a result of the foregoing, the Company incurred a net loss of
$607,273 and $1,345,801 in the six months ended June 30, 1995 and 1996,
respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
The Company's general and administrative expenses for the years ended
December 31, 1994 and 1995 were $268,414 and $907,393, respectively. The
$638,979 increase in general and administrative expenses was a function of the
Company's hiring of additional management and sales staff, increased use of
management consulting, engineering, legal and accounting professionals, purchase
of more comprehensive insurance policies and increased executive compensation.
For the years ended December 31, 1994 and 1995, the Company's research
and development expenses were $178,146 and $393,874, respectively. The $215,728
increase in research and development expenses was a reflection of the Company's
accelerated research and development efforts and an increased focus on
developing prototype products during the latter part of 1995.
The Company's interest expense was $46,312 and $63,528 for the years
ended December 31, 1994 and 1995, respectively. The Company's interest expense
increased by $17,216 as a result of additional interest expenses incurred with
respect to equipment financing secured in September 1994. In the year ended
December 31, 1995, the Company earned interest income of $45,650 on cash
deposits.
Due to the factors described above, the Company incurred net losses of
$492,872 and $1,319,145 in the years ended December 31, 1994 and 1995,
respectively.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.
The Company's general and administrative expenses were $81,886 in the
year ended December 31, 1993 and $268,414 in the year ended December 31, 1994.
General and administrative expenses increased by $186,528 primarily in response
to increases in the Company's staff and the Company's increased use of
management consulting, engineering, legal and accounting professionals.
For the years ended December 31, 1993 and 1994, research and
development expenses were $69,256 and $178,146, respectively. The Company's
expenses for research and development increased by $108,890 as the Company
increased the scope of its research and development efforts to a number of
product lines.
Interest expense for the Company for the years ended December 31, 1993
and 1994 was $16,360 and $46,312, respectively. The Company's interest expense
increased by $29,952 primarily as a result of $10,346 of additional interest
expense with respect to equipment financing secured in September 1994 and
$11,278 of additional interest expense with respect to notes payable.
In the year ended December 31, 1993, the Company recognized a $18,000
loss on the disposal of property and equipment.
As a result of the foregoing, the Company incurred net losses of
$185,502 and $492,872 in the years ended December 31, 1993 and 1994,
respectively.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital deficiency of
$(216,966) and cash and cash equivalents of $640,592. The Company intends to use
the proceeds of this offering and the cash generated from operations, if any, to
finance its proposed plan of operations.
The capital requirements relating to implementation of the Company's
business plan will be significant. Based on the Company's current assumptions
relating to implementation of its business plan (including the timetable of and
the cost associated with development of manufacturing capabilities, a service
fleet, a corporate headquarters, and research and development facilities), the
Company will seek to develop at least four service centers during the 12 months
immediately following this offering. The Company believes that product sales
will commence in the third quarter of 1996 and that the proceeds from the
Convertible Notes are sufficient to fund working capital requirements until
sales of the Company's products reach levels sufficient to fund working capital
requirements. The Company believes that its ability to generate cash from
operations is dependent upon, among other things, demand for its products and
services and the Company's third party leasing arrangement with Oakmont. If the
Company's third party leasing arrangements with Oakmont proves to be
unsuccessful, and the Company is unable to locate another third party willing to
provide comparable third party leasing services, the Company believes that it
will be substantially dependent upon the proceeds of the Concurrent Offering to
execute its proposed plan of operations over the next 12 months. If the
Company's plans change, its assumptions prove to be inaccurate, the capital
resources available to the Company otherwise prove to be insufficient to
implement its business plan (as a result of unanticipated expenses, problems or
difficulties, or otherwise) or in the event the Concurrent Offering is not
completed, the Company has plans to restructure its operations to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. In order to reduce certain of the Company's up-front capital
requirements associated with service center and service fleet development, the
Company intends to lease service center sites and may seek to the extent
possible, to lease rather than purchase certain equipment and vehicles necessary
for service center development. There can be no assurance that the Company will
have sufficient capital resources to permit the Company to fully implement its
business plan. The Company has no current arrangements with respect to, or
sources of, additional financing. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all. If
adequate funds are not available from additional sources of financing, the
Company's business may be materially adversely affected. In addition, any
implementation of the Company's business plan subsequent to the 12 month period
immediately following this offering will require capital resources substantially
greater than the proceeds of the Concurrent Offering or otherwise currently
available to the Company.
The Company's material commitments relate to its obligations to pay the
contract manufacturers of its SystemOne(Trademark) Washers, make lease payments
pursuant to certain real property and equipment leases and satisfy its financial
obligations under three employment agreements. Upon consummation of this
offering, the Company will not have any outstanding indebtedness. The Company
anticipates that its material commitments will increase significantly upon the
consummation of this offering as a result of the Company's planned expansion.
See "Business-Manufacturing and Supply" and "-Properties" and "Executive
Compensation." Additionally, under certain circumstances, the Company would be
required to acquire the lessor's interest of First Recovery in certain leases
entered into by First Recovery under a pilot marketing program. Because the
Company does not intend to use third-party financing with respect to units
leased under the pilot marketing program with First Recovery and Valvoline Oil
Company, it will be required to use a portion of the proceeds of the Concurrent
Offering to finance those units. See "Business-Marketing and Servicing
Strategy."
In August 1994, the Company acquired a Trumpf Model 200 TC Computer
Numerical Controlled Punch Press (the "Punch Press"). The Company financed the
acquisition of the Punch Press pursuant to a finance and security agreement with
The CIT Group/Equipment Financing, Inc. ("CIT"). Pursuant to the terms of the
finance agreement and security agreement, the Company has agreed to pay CIT an
aggregate
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of $341,397 in equal monthly payments of $5,690 over five years. The Company's
obligations to CIT are secured by a security interest in the Punch Press.
As indicated in the accompanying financial statements, as of June 30,
1996, the Company's accumulated deficit totalled $3,577,015. Since its
inception, the Company has financed its operations through a variety of stock
and debt issuances and conversions and the sale of property. In November 1990,
the Company obtained from Pierre Mansur, its Chairman and President, all rights
to certain ongoing research and development and related patents and patents
pending, as well as certain real estate and equipment, in exchange for 2,000,000
shares of Common Stock. In January 1991, the Company issued $300,000 in
principal amount of its 12% Promissory Notes (the "Promissory Notes"). To raise
additional capital and refinance a portion of the Promissory Notes, in September
1993 the Company issued 580,000 shares of 12% Cumulative Redeemable Preferred
Stock (the "First Series Preferred Stock") in exchange for $380,000 and the
satisfaction of $200,000 in principal amount of the Promissory Notes.
In April 1992, the Company sold the commercial property originally
contributed to the Company in 1990 for $120,000 in cash and a $200,000 purchase
money mortgage ("PMM"), which bore interest at a rate of 12%. In January 1994,
the Company assigned its rights to receive interest with respect to the PMM to
satisfy the Company's obligation to pay interest with respect to the remaining
outstanding Promissory Note. The principal amount of the PMM was paid to the
Company on April 24, 1995.
In November 1994, the Company borrowed $500,000 pursuant to a 12%
Secured Convertible Promissory Note (the "Secured Note") and in April 1995 the
Company issued 490,000 shares of 12% Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock") in exchange for $1,950,000 in cash and the
satisfaction of the Secured Note.
To minimize the Company's dividend obligations, in May 1995 the Company
issued a notice of redemption with respect to the First Series Preferred Stock
and, subsequently, all of the outstanding shares of First Series Preferred Stock
and accrued interest thereon were converted into an aggregate 656,729 shares of
Common Stock.
In May 1996, the Company issued 20,000 shares of Common Stock in
satisfaction of the remaining outstanding $100,000 in principal amount of the
Promissory Notes.
In June 1996, the Company issued 628,180 shares of Common Stock in
exchange for all of the Series A Preferred Stock and accrued dividends thereon.
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul
Mansur advanced the Company an aggregate of $150,000 (the "Debt") between June
1, 1990 and May 31, 1996. On December 31, 1994 and December 31, 1995, the
Company paid Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction
of interest owed with respect to the Debt. On May 31, 1996, the Company paid Mr.
Paul Mansur $150,000 and $5,000 in satisfaction of the outstanding principal
balance of and the interest owed with respect to the Debt.
In June 1996, the Company issued (the "Private Financing") $1,012,500
in principal amount of Convertible Notes, bearing interest at the rate of 4% per
annum through September 30, 1996 and thereafter until maturity at the rate of
12% per annum, and convertible into Common Stock at a conversion price of $6.75
per share. Pursuant to the provisions of the Convertible Notes, the entire
outstanding principal amount thereof will be automatically converted into
150,000 shares of Common Stock upon the consummation of this offering. Each of
Environmental Technologies BVI, Limited, a consulting firm of which Dr. Jan
Hedberg, a director of the Company, is Managing Director, Mr. Joseph E. Jack, a
director of the Company, and Mr. Elias F. Mansur, a director of the Company,
acquired Convertible Notes in the principal amount of $101,250, and, upon
consummation of this offering, each of them will receive 15,000 shares of the
Company's Common Stock pursuant to the automatic conversion thereof.
- 18 -
BUSINESS
GENERAL
The Company has developed and obtained patent protection with respect
to a full line of self-contained, recycling industrial parts washers that
incorporate innovative, proprietary waste minimization technologies and
represent a significant advance over currently available machinery and
processes. Focusing on waste minimization rather than its removal and recovery,
the Company believes that its equipment will have a major impact on the
industrial parts cleaning industry and will have a broad appeal to customers,
because its equipment, unlike the machines now in use, facilitates efficient and
economical compliance with environmental regulations, minimizes waste disposal
requirements, enhances cleaning solution utilization, and increases worker
safety and productivity.
Most machinery and equipment require oil lubrication to function
properly. Removal of lubrication oils from tools and parts during automotive,
aviation, marine and general industrial maintenance, service and repair
operations is typically effected through the use of mineral spirit solvents
which become contaminated in the cleaning process. Under the most common current
practice, the solvent becomes more contaminated (and less effective) with
repeated use, and, when it is saturated with oil, sludge and other contaminants
as a result of the cleaning process (and frequently classified as a hazardous
waste under federal and state regulations), it must be stored on site until
pick-up, when pure solvent is delivered and the contaminated solvent is,
generally, shipped to regional refining facilities. This off-site recycling
program is typically scheduled on four to sixteen week cycles and involves both
the utilization of progressively more contaminated solvent for cleaning
operations until the solvent is too contaminated for use, and thereafter, the
on-site storage of the hazardous solution until the periodic waste recovery
service. By contrast, the Company's products allow the use and re-use of the
solvent by removing all the contaminants from the solvent within the cleaning
unit itself, minimizing the volume of waste by-product and providing pure
solvent to the customer on demand, without the costly and dangerous storage and
transportation of hazardous waste. Moreover, the small amount of waste
by-product yielded in the distillation process utilized by the Company if
products can typically be recycled and/or disposed of together with the
customer's used motor oil, which is generally not classified as a hazardous
waste. Substantially all of the Company's target customers have established
systems for the handling, transportation, recycling and disposal of used motor
oil. The Company's products have been extensively tested and proven effective by
independent engineering concerns and testing laboratories.
STRATEGY
The Company's strategy is to focus initially on the manufacture,
marketing and sale of its SystemOne(TM) Washer because of the anticipated size
of the market for the product. The Company anticipates that the product should
be able to achieve fairly rapid market penetration because of its technological,
economic and environmental advantages and its relatively low price point
compared to competitive equipment. Once the manufacturing and marketing programs
for the SystemOne(TM) Washer are fully implemented, it will commence marketing
its other products for which it has continued its research and development. The
Company hopes to rapidly penetrate the industrial parts cleaning market by
entering into large quantity contracts with target customers which have already
established a national or regional presence, and are able to exploit more fully
the economic and environmental benefits of the Company's products.
The Company expects to pursue a national expansion program, through
internal growth utilizing a network of regional distribution and service
centers, through a strategic alliance with a national distributor, if one is
available on favorable terms, or through a combination of the two. The Company
is carrying out an internal growth program in Florida, where, in addition to its
regional service center in Miami, it plans to establish at least four additional
centers during the 12 months immediately following this offering, in Orlando,
Tampa, Jacksonville and West Palm Beach. In August, the Company will commence a
test of a strategic marketing alliance by entering into a pilot program with
First Recovery and Valvoline Oil Company, two
- 19 -
affiliates of Ashland Inc., a multinational oil refiner and distributor of
automotive related products, including Valvoline Oil and Ashland 140 Solvent,
one of the brands of mineral spirits solvent used in the Company's
SystemOne(Trademark) Washer. Under the pilot program, First Recovery will be the
exclusive distributor of the SystemOne(Trademark) Washer in the Dallas/Ft. Worth
and Houston markets. The initial term of the program is one year. If the
arrangement proves successful, the Company expects to negotiate a broader
agreement, possibly including a national distribution program.
The Company expects to continue its emphasis on research and
development even after its initial products are commercialized. The Company
believes that its technology and its emphasis on waste minimization should yield
product advances with broad market applications beyond the Company's current
target market.
INDUSTRY OVERVIEW
The Company believes the chemical industrial parts cleaning industry
has grown primarily in response to the demand for means of removing lubrication
oils and other contaminants from tools and parts during automotive, aviation,
marine and general industrial maintenance, service and repair operations. Based
on financial and trade journal reports, the Company believes that in 1996
businesses in the United States incurred more than $1 billion in expenses to
clean industrial parts using chemical cleaning techniques. Industrial parts
cleaning machines are used by automotive, aviation and maritime service, repair
and rebuilding facilities, gas stations, transmission shops, parts
remanufacturers, machine shops, and general manufacturing operations of every
size and category requiring parts cleaning.
The Company believes that the level of demand for the different types
of industrial parts cleaning machines and services is and will continue to be a
function of, among other things: (1) the effectiveness of the technology; (2)
the cost of the machines and service; (3) the time and costs associated with
documenting compliance with applicable environmental and other laws; (4) the
safety and environmental risks associated with the machine and service; (5)
customer service; and (6) the difficulty in handling the regulated substances
used and/or generated by competitive machines.
PRODUCTS AND SERVICES
The Company product line includes a variety of self-contained recycling
industrial cleaning and washing equipment, all of which incorporate proprietary
waste minimization technology with respect to which the Company has obtained or
applied for patent protection. The Company expects that all the products listed
below will be available for commercial exploitation at various times prior to
December 31, 1998. All of the Company's products utilize technology that (i)
provides continuously recycled cleaning solution during the cleaning process,
(ii) eliminates the necessity for continual replacement and disposal of
contaminated cleaning solution and residues and (iii) facilitates practical and
cost effective compliance with environmental laws and regulations. The Company
anticipates that it will offer its various parts washing products to commercial
users at prices which range from $2,000 to $25,000 per unit.
SYSTEMONE(Trademark) WASHER.
The first of the Company's products to be available in commercial
quantities is the SystemOne(Trademark) Washer. The SystemOne(Trademark) Washer
line provides users with pure mineral spirit solvent for parts and tools
cleaning purposes, utilizing a low-temperature vacuum distillation process to
recycle the used solvent within the SystemOne(Trademark) Washer, so that the
solvent may be reused, on demand, without any need for off-site processing. The
SystemOne(Trademark) Washer minimizes the volume of waste by-product and
eliminates the need for storage and disposal of the hazardous waste solvent
necessitated by the most widely-used current treatment method.
The Company's SystemOne(Trademark) Washer consists of one or two
washing sinks mounted at standing level on top of a metal cabinet; a hinged lid
on top of the washing sink to minimize evaporation of solvent;
- 20 -
a five gallon primary solvent holding tank; a distillation unit which contains a
residue reservoir; and a 30-gallon secondary solvent holding tank. The
SystemOne(Trademark) Washer utilizes a manually operated hose and scrubber which
directs the flow of solvent to the part being cleaned.
The distillation unit separates the solvent from the contaminants that
accumulate in the solvent as a result of use by heating the solvent solution in
a vacuum to a temperature at which the solvent, but not the residue, vaporizes;
and then, cooling the solvent vapor so that the vapor condenses and is converted
back into a liquid. The distilled solvent is channeled to the secondary solvent
holding tank for future use. Accordingly, the solvent may be repeatedly used,
distilled and reused without need for off-site distillation or processing. The
residue is collected and held in the residue reservoir until final disposal.
With respect to SystemOne(Trademark) Washers which are used in
accordance with their intended purpose, the Company believes that the residue
may be legally recycled and/or disposed of in the same manner that used oil is
recycled and/or disposed of. See "-Government Regulations." The Company believes
that substantially all of its target customers currently have established
systems for the handling, transportation, recycling and disposal of used oil. In
those instances in which the residue may not be recycled as used oil, the
residue, but not the distilled solvent, shall be periodically picked up,
recycled and/or disposed of by a third party. The Company warrants to users that
if, for any reason, the residue generated by its SystemOne(Trademark) Washer
cannot be recycled and/or disposed of as used oil, the Company will pay for any
required recovery and disposal services. The Company does not intend to be in
the business of handling, transporting, recycling and/or disposal of residue. If
it is required under its warranty to pay for recovery and disposal, it intends
to retain a third party to provide the required services.
The Company has also developed and obtained patent protection with
respect to a general parts washer which utilizes an aqueous based cleaning
solution. The Company is in the process of evaluating when it will commence the
commercial production and marketing of its aqueous based parts cleaner.
The target market for SystemOne(Trademark) Washers are automotive,
aviation and maritime service, repair and rebuilding facilities, gas stations,
transmission shops, parts remanufacturers, machine shops, and general
manufacturing operations of every size and category requiring small parts
cleaning.
The Company anticipates that the SystemOne(Trademark) Washer will
require service approximately four times a year for replacement of solvent lost
to evaporation or spillage and general maintenance requirements. See "Marketing
and Services Strategy" for additional information regarding the servicing of the
SystemOne(Trademark) washers.
OTHER PRODUCTS.
MULTIPROCESS POWER SPRAY WASHER is currently manufactured and marketed
on a limited basis, and integrates three processes in one self-contained
machine; a power spray wash process, a recycling/reclamation process and a
thermal oxidation process. The Power Spray Washer is able to accommodate large
and bulky parts or units that are too large for the SystemOne(Trademark) Washer.
The target market for power spray washers are automotive, aviation and maritime
maintenance, repair and rebuilding facilities, parts remanufactures, machine
shops, transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MULTIPROCESS SPRAY GUN WASHER is scheduled for commercial introduction
in late 1996. It incorporates the Company's recycling/reclamation capabilities
for paint thinner recovery. The target market for spray gun washers are
automotive, aviation and maritime paint shops and all general manufacturing
operations that utilize paint. The Company anticipates that the auto paint
industry will represent a substantial market. The MultiProcess Spray Gun Washer
facilitates compliance with rigorous environmental disposal regulations for the
paint industry.
- 21 -
MULTIPROCESS IMMERSION WASHER is scheduled for commercial introduction
in 1997. It integrates an immersion wash process, a recycling/reclamation
process and a thermal oxidation process in one self-contained machine. The
MultiProcess Immersion Washer is designed for cleaning of complex parts
containing substantial integral and highly inaccessible passages requiring a
total immersion washing. The primary target market for immersion washers are
radiator rebuilding shops as well as automotive, aviation and maritime
maintenance, repair and rebuilding facilities, parts remanufactures, machine
shops, transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MINIDISPOSER is scheduled for commercial introduction in 1998. It is a
compact and portable mini-thermal oxidizer developed as a practical and
efficient means for the disposal of contaminants by thermal oxidation within a
unit measuring only one cubic foot. The MiniDisposer will be marketed both as
optional equipment with the SystemOne(Trademark) Washer and as a stand alone
mini-thermal oxidizer. The Company believes that the size and scope of the
market for the MiniDisposer is substantial and diversified and includes
industrial, commercial and consumer applications that generate small contaminant
waste by-products. The Company continues to explore potential markets in
medical, restaurant and other commercial and consumer applications.
COMPETITION
The industrial parts cleaning industry is highly competitive and
dominated by a large company, Safety-Kleen Inc. ("Safety-Kleen"), which has
substantially greater financial and other resources than the Company.
Safety-Kleen services the parts cleaning industry through a "closed-loop"
recycling system in which contaminated solvent is removed for recycling and
fresh solvent is delivered on a periodic basis. There can be no assurance that
Safety-Kleen will not develop or acquire technology similar to or different from
the Company's that would allow it to provide an on-site recycling service. To
the best of the Company's knowledge, no other company is currently commercially
marketing a recycling parts washer with comparable characteristics. There can be
no assurance that Safety-Kleen or other competitors will not acquire or develop
patent rights with respect to a recycling parts washer which are competitively
superior to the Company's patent rights. See "-Patents, Trademarks and
Proprietary Technology."
The Company believes that certain of its target customers have
attempted to enhance the capabilities of their existing industrial parts washers
by acquiring machines capable of distilling solvent used in and removed from the
parts washers. Although there are a wide variety and types of such machinery
currently available to the public, the Company believes its SystemOne(Trademark)
Washers provide superior service at a lower cost.
The Company believes that Safety-Kleen services a significant portion
of the parts washing machines currently in use. Based upon market studies
conducted by the Company, the Company believes that no other competitor accounts
for more than 2% of the industrial parts washer market in the State of Florida
or the United States.
According to Safety-Kleen's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "Safety-Kleen Annual Report"), Safety-Kleen was the
world's largest provider of parts washing services and one of the world's
largest collectors and re-refiners of used oil. According to the Safety-Kleen
Annual Report, at December 31, 1995, Safety-Kleen had Shareholders' Equity of
approximately $433.0 million and, in the year ended December 31, 1995,
Safety-Kleen had aggregate revenues of approximately $859.0 million, including
revenues of approximately $240.0 million from its automotive/retail parts
cleaning service and $119 million from its industrial parts cleaning service,
and served its customers in North America and Europe through a network of 235
branch facilities. At December 31, 1995, Safety-Kleen was providing services for
approximately 493,000 parts washers for customers in the United States, of which
approximately 375,000 were owned by Safety-Kleen and 118,000 were owned by its
customers.
- 22 -
The Company believes that its SystemOne(Trademark) Washer will compete
favorably with its competitors on the basis of, among other things, (1) the
effectiveness of the technology; (2) cost; (3) the time and cost associated with
documenting compliance with applicable environmental and other laws; (4) the
safety and environmental risks associated with the machines and service; (5)
customer service; and (6) the difficulty in handling the regulated substances
used and/or generated by competitive machines.
GOVERNMENT REGULATION
The Company believes that federal and state laws and regulations have
been instrumental in shaping the industrial parts washing industry. Federal and
state regulations dictate and restrict to varying degrees what types of cleaning
solvents may be utilized, how a solvent may be stored and utilized, and the
manner in which contaminated solvents may be generated, handled, transported,
recycled and disposed of.
Although the federal and state laws and regulations discussed below
regulate the behavior of the Company's customers, and not the Company, the
Company believes that customer demand for its SystemOne(Trademark) Washer is
partially a function of the legal environment in which the Company's customers
conduct business. The Company's SystemOne(Trademark) Washer was designed to help
minimize the cost of complying with existing federal and state environmental
laws and regulations. Any changes, relaxation or repeal of the federal or state
laws and regulations which have shaped the industrial parts washing industry may
significantly affect demand for the Company's products and the Company's
competitive position.
REGULATION OF SOLVENT TYPES. Federal and state regulations have
restricted the types of solvents that may be utilized in industrial parts
cleaning machines. Prior to December 1995, methyl chloroform was a widely used
cleaning solvent. The Clean Air Act of 1990 mandated the elimination of methyl
chloroform by December 1995.
REGULATION OF HANDLING AND USE OF SOLVENTS. Stoddard solvents, more
commonly known as mineral spirits and solvent naphtha, are the cleaning solvents
typically used in the industrial parts washers of the Company's closest
competitors. The Company intends to use mineral spirits with a minimum of 140
degrees fahrenheit ignitable limits in its SystemOne(Trademark) Washer. Such
mineral spirits do not exhibit the ignitability characteristic for liquid
hazardous wastes as defined in the Resource Conservation and Recovery Act of
1976, as amended, and the implementing regulations of that statute adopted by
the United States Environmental Protection Agency (the "EPA") (collectively,
"RCRA"). Certain machines of the Company's competitors use mineral spirits with
lower ignitable limits, which may, after use, render such mineral spirits
subject to regulation as a hazardous waste. The Company believes that the
ability to recycle the mineral spirits used in its SystemOne(Trademark) Washer
provides an economic benefit to the Company's customers by allowing them to
avoid the expenses and potential liability associated with the disposal of such
solvent as a hazardous waste. See "Government Regulation -Regulation of
Generation, Handling, Transportation and Disposal of Contaminated Solvents."
Federal, state and many local governments have adopted regulations
governing the handling, transportation and disposal of such solvents. On the
federal level, under the Hazardous Materials Transportation Act (HMTA), the
United States Department of Transportation has promulgated requirements for the
packaging, labeling and transportation of mineral spirits in excess of specified
quantities. The Company does not intend to transport mineral spirits in
quantities that would trigger the HMTA requirements.
Relative to the handling and disposal of mineral spirits, many states
and local governments have established programs requiring the assessment and
remediation of hazardous materials that have been improperly discharged into the
environment. Liability under such programs is possible for unauthorized release
of mineral spirits in violation of applicable standards. Civil penalties and
administrative costs may also be imposed for such violations.
- 23 -
REGULATION OF GENERATION,TRANSPORTATION, TREATMENT, STORAGE AND
DISPOSAL OF CONTAMINATED SOLVENTS. The generation, transportation, treatment,
storage and disposal of contaminated solvents is regulated by the federal and
state governments.
At the federal level, the Resource Conservation and Recovery Act
authorized the EPA to develop specific rules and regulations governing the
generation, transportation, treatment, storage and disposal of hazardous wastes
as defined by the EPA. The EPA's definition of hazardous waste appears under
Chapter 40 CFR Part 261. The Company believes that none of the residue
by-products, the used solvent before distillation or the solvent recycled in a
SystemOne(Trademark) Washer used in accordance with its intended purpose and
instructions is subject to regulation as a "hazardous waste." In contrast, the
Company believes that the mixture of solvent and contaminants which is
periodically recovered from the machines of many of its competitors is subject
to regulation as "hazardous waste."
The Company believes that the ability to recycle and dispose of its
residue by-product as used oil rather than as a hazardous waste is economically
attractive to the Company's customers for a number of reasons. The Company
believes that substantially all of its target customers currently have
established systems for the handling, transportation, recycling and/or disposal
of used oil. Accordingly, the classification of the residue as used oil would
enable the Company's customers to: (1) dispose of or recycle the residue at no
significant additional cost; and (2) avoid certain costs associated with
establishing and disposing of wastes in compliance with a hazardous waste
disposal system.
Even if the residue by-product was required to be handled, transported,
recycled and/or disposed of as a hazardous waste, the fact that the
SystemOne(Trademark) Washer effects a substantial reduction in the volume of
waste product requiring disposal would still serve to minimize disposal costs.
The Company believes that solvent which has been used and is being held
in a SystemOne(Trademark) Washer prior to distillation is not a "waste" and is
not subject to regulation as a hazardous waste.
RCRA establishes the basic framework for federal regulation of
hazardous waste. RCRA governs the generation, transportation, treatment,
storage, and disposal of hazardous waste. In contrast to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), which
is discussed below, RCRA is designed to anticipate and prevent harm to human
health and the environment, rather than to respond to the release of hazardous
wastes.
RCRA requires that facilities that generate, treat, store or dispose of
hazardous wastes comply with certain operating and permitting standards. RCRA
provides standards for permitting, maintenance and operation of facilities
handling hazardous wastes, including requirements for testing and maintenance of
equipment, contingency plans and emergency procedures, secondary containment,
recordkeeping and reporting to government agencies. The recordkeeping and
reporting requirements of RCRA are significant. Before transportation and
disposal of hazardous wastes off-site, generators of such waste must package and
label their shipments consistent with detailed regulations and prepare a
manifest to be filed with the appropriate governmental agency identifying the
material and stating its destination. The transporter must deliver the hazardous
waste in accordance with the manifest and to a facility with an appropriate RCRA
permit (a "TSD Facility"). Failure to comply with the manifesting requirements
may result in the imposition of civil and/or criminal penalties. Many states and
local governments have adopted regulatory programs which parallel the RCRA
regulatory system, many of which programs are in certain ways more restrictive
and burdensome than the RCRA system.
With regard to regulation of "used oil", the EPA ruled in 1992 that
used oil is not a hazardous waste under RCRA. Like the RCRA regulations
pertaining to hazardous wastes, the EPA's used oil regulations provide standards
for permitting, the maintenance and operation of used oil facilities, including
requirements for testing and maintenance of equipment, contingency plans and
emergency procedures, secondary containment, recordkeeping and reporting.
However, there are some material differences between RCRA's regulation of
hazardous waste and used oil. In contrast to hazardous wastes, used oil need not
be
- 24 -
processed solely at sites with treatment, storage and disposal permits. In
addition, the generators of used oil are not required to file a shipping
manifest with government agencies with respect to each shipment of used oil.
Many state and local governments have adopted regulatory programs which parallel
the EPA's program for regulating used oil, many of which programs are in certain
ways more restrictive or burdensome than the EPA's program. For instance,
certain state and local governments continue to regulate used oil as a hazardous
waste.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act
of 1986 ("SARA"), sets forth national policy and procedures for containing and
removing releases of hazardous substances, and identifying and remediating sites
contaminated with hazardous substances. CERCLA created an $8.5 billion fund (the
"Superfund"), financed from taxes on petroleum and various chemicals, to be
administered by the EPA to fund cleanup of hazardous waste sites. SARA
significantly expanded the scope of hazardous waste cleanup and imposed more
stringent cleanup requirements. The Superfund's most notable objective, however,
is to provide criteria and financial assistance for site cleanups and to impose
liability on parties responsible for such contamination - namely, owners and
operators of vessels or facilities from which such releases occur, and persons
who generated, transported, or arranged for the transportation of hazardous
substances to a facility from which a release or threatened release occurs.
Most states, including Florida, have created programs similar to
Superfund. These state programs are principally designed to help finance the
state's share of remediation costs of sites under the federal Superfund and to
finance cleanups at state sites that are not considered a priority for
remediation under the federal program.
The CERCLA definition of hazardous substances provides a major
exception for petroleum, including used oil if recycled. However, liability
under CERCLA is possible if petroleum products are released that contain
hazardous substances as additives or that are tainted with hazardous substances
during their use and disposal.
The Company believes that the demand for its SystemOne(Trademark)
Washer is enhanced as a result of certain federal and state environmental laws
and regulations. Although the demand for industrial parts cleaning machines and
services may be substantial in certain international markets, the level of
demand for the Company's SystemOne(Trademark) Washer may not be substantial in
certain countries as a result of permissive regulatory systems which allow the
use of less environmentally stringent cleaning and waste disposal methods.
MANUFACTURING AND SUPPLY
The Company manufactures certain of its SystemOne(Trademark) Washers at
its 10,000 square foot manufacturing facility located in Miami, Florida, at
which all manufacturing operations, including design, metal cutting, bending and
welding, painting and assembly can be performed. The Company has acquired all of
the machinery necessary to manufacture SystemOne(Trademark) Washers. The Company
believes that it can produce up to 200 SystemOne(Trademark) Washers a month at
its manufacturing facility. The Company has secured third parties capable of
manufacturing the balance of the SystemOne(Trademark) Washers needed to meet
anticipated customer demand for the next 12 months. The Company intends to
secure additional manufacturing capacity as the need arises.
On May 7, 1996, the Company entered into an agreement (the "Supply
Agreement") with a supplier (the "Supplier") pursuant to which the Supplier
agreed to supply to the Company, at the Company's election, between 3,000 and
5,000 SystemOne(Trademark) Washers at established prices and in accordance with
a delivery schedule. The Supply Agreement delivery schedule provides for the
monthly delivery of a minimum of 100, 200, 300 and 400 SystemOne(Trademark)
Washers in the quarters commencing August 1996, November 1996, February 1997 and
May 1997, respectively, and for the monthly delivery of a maximum of 500
SystemOne(Trademark) Washers after December 1996. The Supply Agreement provides
for adjustments in the established pricing
- 25 -
schedule based upon certain reductions in the cost of production and/or
increases in the cost of sheet metal.
The Company has ordered a prototype SystemOne(Trademark) Washer
manufactured by the Supplier and has paid the first of three $50,000 payments
toward a $150,000 advance (the "Advance"), which amount will be credited against
future purchases under the Supply Agreement at a rate of $50 per
SystemOne(Trademark) Washer. The Supply Agreement provides that the Supplier
will, based upon the Company's specifications and drawings, manufacture the
SystemOne(Trademark) Washers in its factory and manufacture such items
exclusively for the Company. According to the Supply Agreement, the Supplier is
expressly responsible for all sheet metal fabrication, painting, assembling and
quality assurance testing associated with the manufacture of
SystemOne(Trademark) Washers.
The Supply Agreement requires the Company to provide the Supplier with
all of the components and raw materials, except for sheet metal, necessary to
manufacture SystemOne(Trademark) Washers. In addition, the Supply Agreement
requires the Company to acquire and provide to the Supplier for use all of the
hard tooling required to manufacture the SystemOne(Trademark) Washers.
The Supply Agreement provides that the Company may unilaterally
terminate the contract in whole or in part for cause or for convenience. In the
event the Supply Agreement is terminated by the Company for convenience, the
Supplier will be entitled to reimbursement of the costs it has incurred through
the date of termination and, if such termination occurs prior to the delivery of
3,000 SystemOne(Trademark) Washers, the Supplier will be entitled to payment for
SystemOne(Trademark) Washers produced through the date of termination and retain
any unapplied amount of the Advance.
The Company has retained the right to secure other contract
manufacturers of SystemOne(Trademark) Washers. Although, at present, the Company
seeks to avoid the transaction and opportunity costs associated with
identifying, securing and training another SystemOne(Trademark) Washer
manufacturer, the Company does not believe that it is dependent upon the
Supplier to manufacture SystemOne(Trademark) Washers and that other
manufacturers are readily available. The Company has entered into negotiations
with a major contract manufacturer with a 2 million square foot facility and 75
years of experience to provide the manufacturing capacity needed to meet
anticipated future customer demand. No assurances can be given that the Company
and the major contract manufacturers will ever enter into a binding contract.
The SystemOne(Trademark) Washer is an assembly of raw materials and
components all of which the Company believes are readily obtainable in the
United States of America. The Company does not believe that it nor the Supplier
is dependent upon any of their respective current suppliers to obtain the raw
materials and components necessary to assemble and manufacture
SystemOne(Trademark) Washers.
The Company is capable of manufacturing its other products in the
amounts required for testing and test marketing in its own manufacturing
facility.
MARKETING AND SERVICING STRATEGY
In order to create awareness of its products and test the demand for
them, commencing in December 1995, the Company placed an aggregate of 47
SystemOne(Trademark) Washers in 38 automotive dealerships, municipal and private
fleet maintenance facilities, repair facilities and other users of parts
cleaning equipment in South Florida. The demonstrator units were provided at no
charge. The test program was conducted primarily to enable the Company to gauge
the demand for its products. Notwithstanding the absence of a formal marketing
program during the test period, the Company has, to date, received orders from a
number of facilities in which the machines were placed, including Florida
Detroit Diesel MTU (46 Units); Kelly Tractor Company (23 units) and Pantropic
Power Products (25 units), the South Florida Caterpillar dealers; United States
Postal Service (2 units); Southern Sanitation, a subsidiary of Waste Management,
Inc. (5 units); Broward County Mass Transit (25 units); and a number of South
Florida
- 26 -
automobile dealerships (an aggregate of 54 units). The Company commenced
commercial sales and delivery of units in July 1996 at an approximate price per
unit of $2,700.
In a parallel marketing strategy, to test the viability of the
strategic marketing alliance concept for its products, in August 1996 the
Company will commence a pilot program with First Recovery and Valvoline Oil
Company, two affiliates of Ashland Oil, pursuant to which First Recovery will
serve as the exclusive distributor for the SystemOne(Trademark) Washer in the
Dallas/Ft. Worth and Houston markets. The program, whose initial term is one
year, but is cancelable by either party on 60 days notice, sets forth a schedule
for the purchase of 1,000 units by First Recovery during the first year. First
Recovery is obligated to provide routine service to customers. Upon termination
of the program, First Recovery will have the option to require the Company to
assume the leases it has entered into with its customers and to pay First
Recovery, on a discounted basis, the profit it would have realized under such
leases. If First Recovery does not exercise that option, it will have the
additional option, for one year after termination of the program, to lease up to
four times the number of units it leased under the program, but only to its
existing customers. Subject to its assessment of First Recovery's performance,
the Company will consider entering into a more extensive distribution agreement.
The Company also intends to expand the geographic scope of its
operations through its internal marketing operations, initially focusing on
Florida and then expanding to other regions. In addition to its sales and
service operations in Miami, the Company intends to establish sales, service and
technical support service centers in Orlando, Tampa, Jacksonville and West Palm
Beach, Florida during 1996 to support its proposed operations in Florida. The
Company will market and service the SystemOne(Trademark) Washers it places with
customers with its own marketing, service and technical support personnel. The
Company believes it will retain at least 15 marketing, service and technical
support personnel to support its proposed operations in Florida over the next 12
months.
The Company intends to continue to generate consumer awareness of its
SystemOne(Trademark) Washer through the efforts of its sales force, general
advertisements in trade publications, and participation in trade conventions.
SALES FINANCING AND SERVICING PROGRAMS
Initially, the Company intends to make its SystemOne(Trademark) Washers
available to the public through a third party leasing program. The Company
entered into an agreement (the "Product Financing Agreement") with Oakmont
Financial Services ("Oakmont") on May 28, 1996 pursuant to which Oakmont agreed
to provide third party leasing services. Pursuant to the Product Financing
Agreement, the Company is to provide Oakmont certain information with respect to
each proposed customer for which a third party lease is sought, including credit
information with respect to each proposed lessee. Oakmont may reject a lease
application if, in its sole discretion, the proposed transaction does not comply
with Oakmont's then applicable criteria. If Oakmont elects to provide lease
financing, Oakmont will purchase the SystemOne(Trademark) Washer in the manner
and for an amount agreed to by the Company and Oakmont from time to time, upon
Oakmont's receipt of required documentation.
The Product Financing Agreement provides that, upon the customer's
satisfaction of all of its lease payment obligations to Oakmont, the Company
may, at its option, repurchase the subject equipment from Oakmont at a cash
purchase price equal to the fair market value of the subject equipment plus
applicable sales tax. The Product Financing Agreement states that the fair
market value of a SystemOne(Trademark) Washer shall be determined by the mutual
agreement of the Company and Oakmont or, if such an agreement is not reached, by
an appraiser selected by mutual agreement of the Company and Oakmont.
Under the Product Financing Agreement, the Company has agreed, for a
fee, to utilize a reasonable and non-discriminatory approach to assist Oakmont
in reselling any SystemOne(Trademark) Washers with respect to which a customer
has failed to discharge its payment obligations to Oakmont. The Product
Financing Agreement states that Oakmont does not have recourse against the
Company for customer failures to
- 27 -
discharge their obligations to Oakmont unless the Company has breached and
failed to cure certain warranties. In such event, the Product Financing
Agreement requires the Company to purchase from Oakmont the SystemOne(Trademark)
Washer and Oakmont's rights under the financing agreements with the customer for
an amount equal to the sum of all lease payments then due and owing under the
lease, all lease payments payable from the date of default to the end of the
lease term and twenty percent of the equipment cost, less any applicable deposit
which may be retained by Oakmont. Where required by applicable law, the
foregoing amounts are required to be calculated using the discounted present
value of the subject lease payments.
The Product Financing Agreement provides for a term of one year, which
automatically renews for successive one-year terms. Under the Product Financing
Agreement, either the Company or Oakmont may terminate the agreement with or
without cause upon 60 days notice, without affecting the rights and obligations
of either party with respect to previous sales. In addition, if Oakmont declines
any five lease applications within a 30-day period, which lease applications are
accepted and funded by a third party on terms declined by Oakmont, the Company
may, upon 10 days notice, terminate the Product Financing Agreement.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company holds United States patents relating to its
SystemOne(Trademark) Washer, Power Spray Washer, Spray Gun Washer and Immersion
Washer and anticipates that it will apply for additional patents it deems
appropriate. The Company has applied for international patents in Canada, Japan,
Europe and Mexico.
The Company's patent with respect to its SystemOne(Trademark) Washer
was issued on September 27, 1994 and will expire on September 26, 2011. The
Company has three patents pending with respect to its SystemOne(Trademark)
Washer, one of which was allowed by the U.S. Patent Office on April 2, 1996 and
is awaiting issuance. The Company's patent with respect to its Power Spray
Washer was issued on January 11, 1994, and expires on January 10, 2011. The
Company's patent with respect to its Spray Gun Washer was issued on February 14,
1995, and expires on February 13, 2012. The Company's patent with respect to its
Immersion Washer was issued on May 21, 1996 and expires on May 20, 2013. The
Company's patent with respect to its MiniDisposer was allowed by the U.S. Patent
Office on June 26, 1996 and is awaiting issuance.
The Company believes that patent protection is important to its
business. There can be no assurance as to the breadth or degree of protection
which existing or future patents, if any, may afford the Company, that any
patent applications will result in issued patents, that patents will not be
circumvented or invalidated or that the Company's competitors will not commence
marketing self-contained washers with similar technology. It is possible that
the Company's existing patent rights may not be valid although the Company
believes that its patents and products do not and will not infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or proprietary rights of others may occur. In the
event the Company's products or processes infringe patents or proprietary rights
of others, the Company may be required to modify the design of its products or
obtain a license. There can be no assurance that the Company will be able to do
so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation actions. Moreover, if the Company's
product or processes infringes patents or proprietary rights of others, the
Company could, under certain circumstances, become the subject of an immediate
injunction and be liable for damages, which could have a material adverse effect
on the Company.
The Company has applied for a federal trademark with respect to the
mark "SystemOne" and design.
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not
- 28 -
afford complete protection and there can be no assurance that others will not
independently develop such know-how or obtain access to the Company's know-how,
concepts, ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such arrangements will adequately
protect the Company's trade secrets. Since the Company believes that its
proprietary information is important to its business, failure to protect such
information could have a material adverse effect on the Company.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1996, the Company expended $178,146, $393,874 and $365,435,
respectively, on research and development of its various products.
The Company plans to continue to focus significant resources on
research and development of existing and future product lines. Although the
Company intends to continue to seek means of refining and improving its
SystemOne(Trademark) Washer, the Company believes, based on market response,
that the SystemOne(Trademark) Washer is at a stage where commercial exploitation
is appropriate. The Company recognizes that the industrial parts cleaning
industry may be entering a phase of rapid technological change and progress and
the Company will seek to retain what the Company perceives as its technological
superiority over its competitors' products. In order to keep pace with the rate
of technological change, the Company intends to devote considerable resources in
time, personnel and funds on continued research and development for its
products. The Company recognizes that many of its competitors have far greater
financial and personnel resources than the Company which may be devoted to
research and development and can provide no assurance that it will maintain a
technological advantage.
Subject to the availability of financial and personnel resources, the
Company intends to spend approximately $400,000 and $500,000 in the years ended
December 31, 1996 and 1997, respectively, to finalize development and testing of
its various products and to develop new products and concepts. Although there
can be no assurance that the Company will ever develop any new products capable
of commercialization, the Company intends to continue its programs to develop
new products, some of which may utilize the Company's patented products and
processes.
PRODUCT LIABILITY AND INSURANCE
The Company is subject to potential product liability risks which are
inherent in the design and use of industrial parts cleaning machines. The
Company has implemented strict quality control measures and currently maintains
product liability insurance of $5,000,000 in the aggregate and $5,000,000 per
occurrence.
PROPERTIES
The Company maintains its corporate headquarters, research and
development laboratory and manufacturing facilities in a 10,000 square foot
building located in Miami, Florida 33156, under a two year lease which commenced
on January 1, 1995. The lease provides for two renewal terms of two years. The
Company's annual lease payment approximates $61,000, which amount does not
include the Company's responsibility to pay all charges for gas, water, sewer,
trash collection and electrical services. The Company intends to seek additional
space, either at its current location or elsewhere, to house expanded corporate
headquarters and research and development facilities. The Company anticipates no
significant difficulty in locating such space or reasonable terms. The Company
does not anticipate that it will experience difficulty in locating and equipping
its regional sales and service centers, which are expected to contain a small
office space/showroom area and enough space for two or three delivery and
maintenance vehicles.
- 29 -
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
EMPLOYEES
As of the date of this Prospectus, the Company employed 15 employees,
of whom four were in corporate management, three were in research and
development, two were in sales and marketing, four were in manufacturing, and
two were in administration. The Company intends to hire additional employees
after this offering, commensurate with the Company's requirements and available
funds, primarily to expand manufacturing and marketing operations.
- 30 -
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the
executive officers and directors of the Company.
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Pierre G. Mansur 44 Chairman of the Board and President
Paul I. Mansur 45 Director, Chief Executive Officer and
Chief Financial Officer
Charles W. Profilet 59 Vice President-Business Development
Lydia G. Hubbell 31 Controller
Elias F. Mansur 53 Director
Dr. Jan Hedberg 49 Director
Joseph E. Jack 68 Director
- -------------------
PIERRE G. MANSUR founded the Company and has served as its Chairman and
President since its inception in November 1990. From June 1973 to August 1990,
Mr. Pierre Mansur served as President of Mansur Industries Inc., a privately
held New York corporation that operated a professional race engine machine shop.
Mr. Pierre Mansur has over twenty years of advanced automotive and machinery
operations experience including developing innovative automotive machine shop
applications; designing, manufacturing, customizing, modifying and retooling
high performance engines and component parts; developing state of the art
automotive and powerboat race engines which have consistently achieved world
championship status; and providing consulting services and publishing articles
with respect to automotive technical research data. Mr. Pierre Mansur has
conducted extensive research and development projects for several companies,
including testing and evaluating engine parts and equipment for Direct
Connection, a high performance racing division of the Chrysler Corporation;
researching and developing specialized engine piston rings and codings for Seal
Power Corporation; researching high-tech plastic polymers for internal
combustion engines for ICI Americas; and designing and developing specialized
high performance engine oil pan applications. Mr. Pierre Mansur is the brother
of Paul I. Mansur and a cousin of Elias F. Mansur. Mr. Pierre Mansur is a
graduate of the City University of New York.
PAUL I. MANSUR has been Chief Executive Officer, Chief Financial
Officer and a Director since September 1993. From September 1986 to July 1993,
Mr. Paul Mansur served as Chief Executive Officer of Atlantic Entertainment
Inc., a privately held regional retail chain of video superstores. From March
1981 to September 1986, Mr. Paul Mansur served as the Chief Executive Officer
and President of Ameritrade Corporation, a privately held international
distributor of factory direct duty free products. From June 1972 to March 1981,
Mr. Paul Mansur held various finance and operation positions, including
Assistant Vice President Finance and Operations for Mott's USA, Inc., a division
of American Brands. Mr. Paul Mansur is the brother of Pierre G. Mansur and a
cousin of Elias F. Mansur. Mr. Paul Mansur is a graduate of the City University
of New York.
CHARLES W. PROFILET has been the Vice President - Business Development
of the Company since November 1995. From July 1992 to September 1995, Mr.
Profilet served as Vice President - Florida Operations for Rust Environment and
Infrastructure, Inc., a privately held environmental remediation company that is
controlled by WMX Technologies, a publicly traded waste collection and recycling
company traded on the New York Stock Exchange. From March 1991 to July 1992, Mr.
Profilet served as Vice President-Marketing at Metcalf and Eddy, a full-service
engineering and environmental consulting firm specializing in the treatment of
waste water, air quality assurance, emissions control and remedial design. From
July 1987 to February 1990, Mr. Profilet served as Executive Vice President and
Chief Operating Officer at Craig A. Smith and Associates, a privately-held civil
engineering firm. From August 1979 to September
- 31 -
1985, Mr. Profilet served as Vice President- Business Development at Reynolds
Smith and Hills, a privately-held architectural and engineering planning firm.
Mr. Profilet is a graduate of the U.S. Military Academy at West Point and holds
a Master of Engineering degree from the University of Oklahoma.
LYDIA G. HUBBELL, C.P.A. has been the Controller of the Company since
April 1995. From August 1994 until March 1995, Ms. Hubbell served as an internal
auditor for American Savings of Florida, F.S.B. From September 1992 to August
1994, Ms. Hubbell worked with KPMG Peat Marwick LLP during which period she
became the senior accountant with respect to the Company's audits. Ms. Hubbell
is a graduate of the University of Florida and holds a Master of Accounting
degree from the University of Florida.
ELIAS F. MANSUR has been a Director of the Company since August 1995.
From September 1968 to present, Mr. Elias Mansur served as Managing Director of
the Mansur Trading Company and its subsidiaries, an international, diversified
group of companies involved in banking, international trade, manufacturing, real
estate and hotel operations. From June 1975 to March 1981, Mr. Elias Mansur
served as Chairman of the Board of the Central Bank of the Netherlands Antilles.
From September 1984 to December 1985, Mr. Elias Mansur served as Minister of
Economic Affairs of the Netherlands Antilles. From October 1977 to September
1984, Mr. Elias Mansur served as the Chief Economic Advisor, Minister of
Economic Affairs and Chairman of the Council of Economic Advisors to the
government of Aruba. Mr. Elias Mansur is a cousin of Mr. Pierre Mansur and Mr.
Paul I. Mansur.
DR. JAN HEDBERG has been a Director of the Company since August 1995.
From October 1987 to March 1993, Dr. Hedberg was the Chairman and Chief
Executive Officer of Enprotec International Group, N.V., a company he co-founded
and in the business of researching and developing of advanced waste oil
recycling technologies. Since March 1993, Dr. Hedberg has been the Chairman of
the Board and Chief Executive Officer of Enprotec (USA) Inc., a wholly owned
subsidiary of Enprotec International Group, N.V., which manufactures, designs
and assembles oil re-refining plants. Dr. Hedberg was the co-recipient of the
1991 International Technology Award for Enterprising Innovation and Creativity
for the development of the Vaxon Re-refining Process, which is a proprietary
process that transforms used oil into useable oil products. Dr. Hedberg has over
15 years of experience in oil related and environmental companies and 12 years
of research and teaching experience, including executive management and advisory
positions, with several multinational organizations. Dr. Hedberg received his
Doctor of Philosophy (PhD) in Geotechnical Engineering from the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1977.
JOSEPH E. JACK has been a Director of the Company since August 1995.
From May 1989 to June 1991, Mr. Jack served as Vice President of Waste
Management Europe, a waste collection and recycling company that is a publicly
traded company on the London Stock Exchange and a controlled subsidiary of WMX
Technologies, a publicly traded New York Stock Exchange company. From April 1984
to December 1987, Mr. Jack was President of Waste Management Inc. of Florida, a
waste collection and recycling company that is an affiliate of Waste Management,
Inc.. From July 1983 to March 1984, Mr. Jack served as Vice President of Waste
Management Partners, a division of Waste Management, Inc. From February 1982 to
July 1983, Mr. Jack served as Vice President of Waste Management International,
a subsidiary of Waste Management, Inc. From April 1980 to February 1982, Mr.
Jack was Vice President of Waste Management International (Middle East), a
subsidiary of Waste Management, Inc., and from May 1978 to April 1980, Mr. Jack
was the Resident Manager of Waste Management Saudi Arabia, a joint venture
involving an affiliate of Waste Management, Inc. Under Mr. Jack's leadership,
Waste Management experienced unprecedented growth in several markets worldwide
including Waste Management Europe's growth of revenues from $10 million to $700
million in a three year period. Mr. Jack's significant accomplishments in the
waste management field were acknowledged when he was inducted by the National
Waste Management Association into the United States Waste Industry's "Hall of
Fame". Mr. Jack has been an active investor in companies since he retired in
June 1991.
The Company has agreed that, for five years after the effective date of
this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of Directors.
- 32 -
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or payable in respect
of the three years ended December 31, 1995 to the Company's Chief Executive
Officer and its other executive officer whose combined salaries and bonuses
equalled or exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------------------- -----------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION
- ----------------------------------- ------------ ---------------- -------------- --------------- -----------------
Mr. Pierre G. Mansur, Chairman and 1995 $66,000 $267,460(1) $6,605(2) $0
President 1994 $66,000 $0 $ 550(2) $0
1993 $22,000 $0 $0 $0
Mr. Paul I. Mansur, Chief Executive 1995 $48,000 $0 $2,550(2) $0
Officer 1994 $48,000 $0 $0 $0
1993 $5,000 $0 $0 $0
<FN>
- ------------------
(1) Represents incentive compensation earned by Pierre G. Mansur, $88,110 of which has been paid and the remainder of
which has been accrued.
(2) Automobile allowance paid by the Company.
</FN>
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
In September 1993, the Company entered into a two year employment
agreement with Mr. Pierre Mansur, which provides for an annual base salary of
$66,000 and discretionary bonuses, based on Mr. Pierre Mansur's performance, as
determined by the Compensation Committee of the Board of Directors. Pursuant to
the terms of his employment contract, Mr. Mansur's employment was renewed in
September 1995 by the Company for an additional two years. Pursuant to the
employment agreement, during the term of Mr. Pierre Mansur's employment and for
a period of three years following his termination of employment, Mr. Pierre
Mansur is prohibited from disclosing any confidential information, including
without limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Pierre Mansur is prohibited from, directly or indirectly,
engaging in any business in substantial competition with the Company or its
affiliates. The employment agreement also provides that Mr. Pierre Mansur is
prohibited from becoming an officer, director or employee of any corporation,
partnership or any other business in substantial competition with the Company or
its affiliates during the term of his employment and for three years thereafter.
In September 1995, the Company entered into a two year employment
agreement with Mr. Paul Mansur, which provides for an annual base salary of
$48,000 and discretionary bonuses, based on Mr. Paul Mansur's performance, as
determined by the Compensation Committee of the Board of Directors. Pursuant to
the employment agreement, during the term of Mr. Paul Mansur's employment and
for a period of three years following his termination of employment, Mr. Paul
Mansur is prohibited from disclosing any confidential information, including
without limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Paul Mansur is prohibited from, directly or indirectly,
engaging in any business in substantial competition with the Company or its
affiliates. The employment agreement also provides that Mr. Paul Mansur is
prohibited from becoming an officer, director or employee of any corporation,
partnership or any other business in substantial competition with the Company or
its affiliates during the term of his employment and for three years thereafter.
- 33 -
In November 1995, the Company entered into a one year employment
agreement with Charles W. Profilet. Under the employment agreement, Mr. Profilet
is entitled to an annual base salary of $80,000, a car allowance of $400 a month
and monthly commissions, ranging from $5 per unit for parts washers to $25 per
unit for jet washers, with respect to each new washer sold by the Company in the
United States. The commissions earned by Mr. Profilet may be converted, at his
option, into Common Stock at a discount on the then current trading price of the
Common Stock. The conversion discount was 10% as of the date of this Prospectus,
but, may be adjusted at the election of the Board of Directors of the Company.
As of the date of this Prospectus, Mr. Profilet had earned an aggregate of
$12,250 of commissions. The employment agreement provides that Mr. Profilet is
eligible to participate in the Company's discretionary executive profit sharing
awards and executive stock award or stock option awards. Pursuant to the
employment agreement, if Mr. Profilet is terminated for cause, defined as an act
of dishonesty, malfeasance, or other impropriety, he is not entitled to receive
any severance payment. If Mr. Profilet is terminated without cause within his
first year of employment, he is entitled to receive his current salary for six
months or until he secures new employment, whichever occurs first. In addition
to the employment agreement, the Company and Mr. Profilet entered into a
Non-Circumvention and Non-Disclosure Agreement.
INCENTIVE COMPENSATION PLAN
The Company's 1996 Executive Incentive Compensation Plan (the
"Incentive Plan") provides for grants of stock options, stock appreciation
rights ("SARS"), restricted stock, deferred stock, other stock related awards
and performance or annual incentive awards that may be settled in cash, stock or
other property (collectively, "Awards"). The total number of shares of Common
Stock that may be subject to the granting of Awards under the Incentive Plan at
any time during the term of the Plan shall be 375,000. The Employee Plan is
designed to serve as an incentive for retaining qualified and competent
employees, directors, consultants and independent contractors of the Company.
The persons eligible to receive Awards under the Incentive Plan are the
officers, directors, employees and independent contractors of the Company, if
any, and its subsidiaries. No director of the Company who is not an employee of
the Company or any subsidiary (a "non-employee director") will be eligible to
receive any Awards under the Incentive Plan other than automatic formula grants
of stock options and restricted stock as described below, and no independent
contractor will be eligible to receive any Awards other than stock options.
The Incentive Plan is required to be administered by a committee
designated by the Board of Directors consisting of not less than two directors
(the "Committee"), each member of which must be a "disinterested person" as
defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
and an "outside director" for purposes of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Compensation Committee of the Board
has been appointed as the Committee for the Incentive Plan. Subject to the terms
of the Incentive Plan, the Committee is authorized to select eligible persons to
receive Awards, determine the type and number of Awards to be granted and the
number of shares of Common Stock to which Awards will relate, specify times at
which Awards will be exercisable or settleable (including performance conditions
that may be required as a condition thereof), set other terms and conditions of
Awards, prescribe forms of Award agreements, interpret and specify rules and
regulations relating to the Incentive Plan, and make any other determinations
that may be necessary or advisable for the administration of the Incentive Plan.
In addition, the Incentive Plan imposes individual limitations on the
amount of certain Awards in part to comply with Code Section 162(m). Under these
limitations, during any fiscal year the number of options, SARS, restricted
shares of Common Stock, deferred shares of Common Stock, shares as a bonus or in
lieu of other Company obligations, and other stock-based Awards granted to any
one participant may not exceed 250,000 for each type of such Award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
a final annual incentive Award or other cash Award in any fiscal year to any one
participant is $1,000,000, and the maximum amount that may be earned as a final
performance Award or other cash Award in respect of a performance period by any
one participant is $5,000,000.
- 34 -
The Incentive Plan provides that each non-employee director shall
automatically receive (i) on the date of his or her appointment as a director of
the Company, an option to purchase 2,500 shares of Common Stock, and (ii) each
year, on the day the Company issues its earnings release for the prior fiscal
year, an option to purchase 2,500 shares of Common Stock. Such options will have
a term of 10 years and become exercisable at the rate of 33-1/3% per year
commencing on the first anniversary of the date of grant; provided, however,
that the options will become fully exercisable in the event that, while serving
as a director of the Company, the non-employee director dies, or suffers a
"disability," or "retires" (within the meaning of such terms as defined in the
Incentive Plan). The per share exercise price of all options granted to
non-employee directors will be equal to the fair market value of a share of
Common Stock on the date such option is granted.
The Company will agree with the Representative that for a 13-month
period immediately following the effective date of the Registration Statement of
which this Prospectus forms a part, the Company will not, without the consent of
the Representative, adopt or propose to adopt any plan or arrangement permitting
the grant, issue or sale of any shares of its Common Stock or issue, sell or
offer for sale any of its Common Stock, or grant any option for its Common Stock
which shall: (x) have an exercise price per share of Common Stock less than (a)
the initial public offering price of the Common Stock offered in this Prospectus
or (b) the fair market value of the Common Stock on the date of grant; or (y) be
granted to any direct or indirect beneficial holder of more than 10% of the
issued and outstanding Common Stock of the Company. No option or other right to
acquire Common Stock granted, issued or sold during the 13-month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part shall permit (a) the payment with any form of
consideration other than cash, (b) the payment of less than the full purchase or
exercise price for such shares of Common Stock or other securities of the
Company on or before the date of issuance, or (c) the existence of stock
appreciation rights, phantom options or similar arrangements.
The Company has not granted any Award under the Incentive Plan.
COMPENSATION OF DIRECTORS
After this offering, the Company will pay each director who is not an
employee an annual retainer of $10,000. The Company will reimburse all directors
for all travel-related expenses incurred in connection with their attendance at
meetings of the Board of Directors. Directors will also be entitled to receive
options under the Incentive Plan. See "Incentive Compensation Plan."
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted
10,000 shares of the Company's Common Stock in April 1996 in exchange for
previously rendered consulting services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE
The Board of Directors currently administers and determines
compensation, including salary and bonus for the executive officers, directors
and other employees. The Company intends to establish an Audit Committee and a
Compensation Committee shortly after the closing of this offering. The
Compensation Committee will be responsible for setting and administering
policies that govern annual compensation of the Company's executive officers and
administering the 1996 Stock Option and Incentive Plan and the Directors' Plan.
The duties and responsibilities of the Audit Committee will include (i)
recommending to the full Board the appointment of the Company's auditors and any
termination of their appointment, (ii) reviewing the plan and scope of audits,
(iii) reviewing the Company's significant accounting policies and internal
controls, (iv) administering the Company's compliance programs, and (v) general
responsibility for all related auditing matters.
- 35 -
CERTAIN TRANSACTIONS
COMMON STOCK OWNERSHIP
In connection with the organization of the Company in November 1990,
the Company issued 2,000,000 shares of Common Stock, par value $0.001 per share,
to Mr. Pierre Mansur in exchange for the assignment to the Company of certain
ongoing research and development and rights to any related patents and patents
pending and real estate and equipment valued at $52,000.
CONSULTING AGREEMENT AND SERVICES
In November 1994, the Company entered into a two-year consulting
agreement (the "Consulting Agreement") with Environmental Technologies BVI
Limited (the "Consultant"). Pursuant to the Consulting Agreement, the Consultant
agreed to advise, consult with, introduce to third parties and generally assist
the Company in its efforts to explore new manufacturing and marketing
arrangements. In exchange for such services, the Consulting Agreement provided
that the Consultant was entitled to receive certain fees in connection with the
sale of certain equipment, services, license rights, royalty rights,
manufacturing rights, marketing rights or the Company's entrance into a
partnership or joint venture arrangement or consummation of a merger. The
Consultant did not receive any commissions pursuant to the Consulting Agreement.
In December 1995, the Company issued the Consultant 10,000 shares of Common
Stock in exchange for the services rendered by the Consultant and to secure the
Consultant's agreement to terminate the Consulting Agreement and any and all
associated rights of the Consultant. Dr. Jan Hedberg, a director of the Company,
owns 50 percent and serves as the managing director of the Consultant.
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted
10,000 shares of the Company's Common Stock in April 1996 in exchange for
previously rendered consulting services.
NOTE PAYABLE TO CHIEF EXECUTIVE OFFICER
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul
Mansur made a series of advances ranging from $5,000 to $30,000, totaling an
aggregate of $150,000 (the "Debt"), to the Company between June 1, 1990 and May
31, 1996. On December 31, 1994 and December 31, 1995, the Company paid Mr. Paul
Mansur $34,814 and $12,000, respectively, in satisfaction of interest owed with
respect to the Debt. On May 31, 1996, the Company paid Mr. Paul Mansur $150,000
and $5,000 in satisfaction of the outstanding principal balance of and the
interest owed with respect to the Debt.
CONVERTIBLE NOTES
In connection with its issuance of an aggregate of $1,012,500 in
principal amount of Convertible Notes in June 1996, the Company issued
promissory notes in the principal amount of $101,250 to each of Environmental
Technologies BVI Limited, a consulting firm of which Dr. Jan Hedberg, a director
of the Company, is Managing Director, Mr. Joseph E. Jack, a director of the
Company, and Mr. Elias F. Mansur, a director of the Company. Upon consummation
of this offering, each of the Convertible Notes will be automatically converted
into 15,000 shares of the Company's Common Stock. Mr. Mansur, Mr. Jack and
Environmental Technologies BVI Limited acquired the Convertible Notes on the
same terms as other unaffiliated investors.
- 36 -
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock immediately prior to this offering, and
as adjusted to reflect the sale of shares offered hereby and in the Concurrent
Offering, by: (i) each person known by the Company to be the beneficial owner of
more than 5% of the Common Stock, (ii) each Director or nominee for Director of
the Company, (iii) each of the Named Executive Officers and (iv) all Directors
and Executive Officers of the Company as a group.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED
TO THIS OFFERING AFTER THIS OFFERING
------------------------------------ --------------------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- ----------------------------------------- ------------------ ---------------- ------------------ -----------
Mr. Pierre G. Mansur..................... 2,000,000 59.68% 2,000,000 46.01%
Mr. Paul I. Mansur....................... 0 * 0 *
Mr. Elias F. Mansur...................... 26,025 * 41,025(2) *
Dr. Jan Hedberg.......................... 20,000(1) * 35,000(1)(2) *
Mr. Joseph E. Jack....................... 22,820 * 37,820(2) *
Mr. Charles W. Profilet.................. 0 * 0 *
All Directors and Executive
Officers as a Group (6 persons)...... 2,068,845(3) 61.64% 2,113,845(3) 48.6%
<FN>
- ----------------------
* Less than 1%
(1) Includes 10,000 shares of Common Stock held by Environmental Technologies
BVI Limited, of which Dr. Hedberg owns 50 percent and serves as the
Managing Director.
(2) Includes 15,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of $101,250, which conversion
shall occur simultaneously with the consummation of this offering.
(3) See Notes (1) - (2).
</FN>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.001 par value per share, and 1,500,000 shares of Preferred
Stock, $1.00 par value per share. As of the date of this Prospectus, 3,351,309
shares of Common Stock and 0 shares of Preferred Stock are outstanding.
COMMON STOCK
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of shareholders. Subject to the restrictions
summarized below, dividends may be paid to the holders of Common Stock when and
if declared by the Board of Directors out of funds legally available for
dividends. See "Dividend Policy."
Holders of Common Stock have no conversion, redemption, or preemptive
rights. All outstanding shares of Common Stock are fully paid and nonassessable.
In the event of any liquidation, dissolution or winding up of the affairs of the
Company, the holders of Common Stock will be entitled to share ratably in its
assets remaining after provision for payment of creditors and holders of
Preferred Stock. See "Dividend Policy."
- 37 -
PREFERRED STOCK
The Company is authorized to issue Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
value or market price of the Common Stock and voting power or other rights of
the holders of Common Stock. In the event of issuance, the Preferred Stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The "Control Share Acquisitions" section of the Florida
Business Corporation Act ("FBCA") generally provides that shares acquired in
excess of certain specified thresholds, beginning at 20% of the Company's
outstanding voting shares, will not possess any voting rights unless such voting
rights are approved by a majority vote of a corporation's disinterested
shareholders. The "Affiliated Transactions" section of the FBCA generally
requires majority approval by disinterested directors or supermajority approval
of disinterested shareholders of certain specified transactions (such as a
merger, consolidation, sale of assets, issuance of transfer of shares or
reclassifications of securities) between a corporation and a holder of more than
10% of the outstanding voting shares of the corporation, or any affiliate of
such shareholder.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the community in
which the Company operates and the economy in general. Consequently, in
connection with any proposed action, the Board of Directors is empowered to
consider interests of other constituencies in addition to the Company's
shareholders, and directors who take into account these other factors may make
decisions which are less beneficial to some, or a majority, of the shareholders
than if the law did not permit consideration of such other factors.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock
are available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock
and Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary
damages to the corporation or any other person for any statement, vote,
decision, or failure to fact unless (i) the director breached or failed to
perform his duties as a director and (ii) a director's beach of, or failure to
perform, those duties constitutes (1) a violation of the criminal law, unless
the director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (2) a transaction from
which the director
- 38 -
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation or procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the right
of someone other than the corporation or a shareholder, recklessness or an act
or omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the FBCA.
The Articles and Bylaws of the Company provide that the Company shall,
to the fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental
Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the consummation of this offering, the Company anticipates that it
will have 4,351,309 shares of Common Stock outstanding. The 1,000,000 shares
will be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the Company
(in general, a person who has a control relationship with the Company) which
will be subject to the limitations of Rule 144 adopted under the Securities Act.
All of the remaining 3,351,309 shares are deemed to be "restricted securities,"
as that term is defined under Rule 144 promulgated under the Securities Act, in
that such shares were issued and sold by the Company in private transactions not
involving a public offering. Of such remaining shares, 2,656,729 will become
eligible for sale under Rule 144 90 days from the date of this Prospectus and
the remainder will become eligible for such sale at various times prior to June
1998.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class or the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least three years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
- 39 -
All of the Company's officers, directors and shareholders have agreed
not to sell or otherwise dispose of any of their shares of Common Stock for a
period of 13 months from the date of this Prospectus without the prior written
consent of the Representative.
Prior to this offering, there has been no market for the Common Stock
and no prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Description of Securities" for information concerning
outstanding warrants and convertible securities.
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby are issuable by the Company
upon conversion of $1,012,500 in principal amount of Convertible Notes at a
conversion price of $6.75 per share. As a result of the conversion of the
Convertible Notes and the issuance of shares of Common Stock hereby, $1,012,500
of the Company's indebtedness will be extinguished. The Company utilized the
proceeds of the private financing pursuant to which the Convertible Notes were
issued to finance the Concurrent Offering and for general corporate purposes.
The Company will receive none of the proceeds of the sale of shares of Common
Stock issued hereby by the holders thereof. The Company will bear all of the
expenses of the offering, and will pay the Representative commissions and fees
in an aggregate amount of $131,625 in connection with services provided in
connection with the Convertible Notes.
As of the date of this Prospectus, First Malro, Inc., Said Mouawad,
Enrivonmental Technologies BVI Limited, Mr. Joseph E. Jack and Mr. Elias F.
Mansur held $657,000, $33,750, $101,250, $101,250 and $101,250 in principal
amount of the Convertible Notes, respectively. As of the date of this Prospectus
and upon consummation of this offering and the Concurrent Offering, none of the
holders of the Convertible Notes will beneficially own more than 5% of the
Common Stock.
- 40 -
UNDERWRITING OF THE CONCURRENT OFFERING
In connection with the Concurrent Offering, the Underwriters named
below (the "Underwriters"), for whom First Allied Securities, Inc. is acting as
Representative, have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis the respective number of shares of Common Stock set forth
opposite their names:
UNDERWRITER NUMBER
- ----------- -------------
First Allied Securities, Inc.
-------------
Total................................... 850,000
=============
The Underwriters are committed to purchase all shares of Common Stock
offered in the Concurrent Offering if any of such shares are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the
Underwriters propose to initially offer the Common Stock to the public for
$_______ and to certain dealers at such prices less concessions of not in excess
of $_______ per share of Common Stock. Such dealers may reallow a concession not
in excess of $_______ per share of Common Stock to other dealers. After the
commencement of the Concurrent Offering, the public offering prices, concessions
and reallowances may be changed by the Representative.
The Representative has advised the Company that it does not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the total number of shares of Common Stock offered in the Concurrent Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representative an expense allowance on a
nonaccountable basis equal to three percent (3%) of the gross proceeds derived
from the sale of the Common Stock underwritten, of which $50,000 has been paid
to date.
The Underwriters have been granted an option by the Company,
exercisable within forty-five (45) days after the date of this Prospectus, to
purchase up to an additional 127,500 shares of Common Stock at the initial
public offering price per share of Common Stock offered in the Concurrent
Offering, less underwriting discounts and the expense allowance. Such option may
be exercised only for the purpose of covering over-allotments, if any, incurred
in the sale of the shares offered in the Concurrent Offering. To the extent such
option is exercised in whole or in part, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional shares of Common Stock proportionate to its initial commitment.
All of the Company's officers and directors and all of the holders of
the Common Stock have agreed not to, directly or indirectly, sell, transfer,
hypothecate or otherwise encumber any of their shares for thirteen (13) months
following the date of this Prospectus without the prior written consent of the
Representative.
- 41 -
The Company has agreed that, for five (5) years after the effective
date of this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of Directors. Such individual
may be a director, officer, employee or affiliate of the Representative. In the
event the Representative elects not to designate a person to serve on the
Company's Board of Directors, the Representative may designate an observer to
attend meetings of the Board of Directors.
In connection with the Concurrent Offering, the Company has agreed to
sell to the Representative, for nominal consideration, the Representative's
Warrants to purchase from the Company 85,000 shares of Common Stock. The
Representative's Warrants are initially exercisable for shares of Common Stock
at a price of $__________ [120% of the initial public offering price per share
of Common Stock] per share of Common Stock for a period of four (4) years
commencing one (1) year from the date of this Prospectus and are restricted from
sale, transfer, assignment or hypothecation for a period of twelve (12) months
from the date hereof, except to officers and principals of the Representative.
The Representative's Warrants also provide for adjustment in the number of
shares of Common Stock issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock. The Representative's Warrants
grant to the holders thereof certain rights of registration for the securities
issuable upon exercise of the Representative's Warrants.
In connection with the Private Financing, the Representative is
entitled to receive a commission of $101,250 and a non-accountable expense
allowance of $30,375.
The Representative commenced operations in 1994 and does not have
extensive experience as an underwriter of public offerings of securities. The
Representative has acted as the managing underwriter for three public offerings.
The Representative is a relatively small firm and no assurance can be given that
the Representative will participate as a market maker in the Common Stock.
Prior to the Concurrent Offering, there has been no public market for
the Common Stock. Consequently, the initial public offering prices of the Common
Stock has been determined by negotiations between the Company and the
Representative and is not necessarily related to the Company's asset value, net
worth or other established criteria of value. The factors considered in such
negotiations included the history of and prospects for the industry in which the
Company competes, an assessment of the Company's management, the prospects of
the Company, its capital structure and certain other factors as were deemed
relevant.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement filed as an Exhibit to the Registration Statement of
which this Prospectus forms a part.
- 42 -
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
Miami, Florida. Orrick, Herrington & Sutcliffe, New York, New York, has acted as
counsel for the Underwriters in connection with the offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and
1994 and for the period from November 13, 1990 (inception) to December 31, 1991,
and each of the years in the four year period ended December 31, 1995 have been
included in this Prospectus and in the registration statement in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere in this Prospectus, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
under the Securities Act with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement and in
the exhibits and schedules thereto. For further information about the Company
and the Common Stock, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference. Copies of each
such document may be obtained from the Commission at its principal office at 450
Fifth Street, N.W., Washington, D.C., upon payment of the charges prescribed by
the Commission. Copies of each document may also be obtained through the
Commission's internet address at http://www.sec.gov.
- 43 -
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants.................................................... F-2
Financial Statements
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996 (unaudited)...... F-3
Statements of Operations for the period from November 13, 1990 (inception)
to December 31, 1991, and each of the years in the four year period ended
December 31, 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996 (unaudited)............................................................ F-4
Statements of Stockholders' Deficit for the period from November 13, 1990
(inception) to December 31, 1991, and each of the years in the four year
period ended December 31, 1995 and for the six months ended June 30, 1996
(unaudited)..................................................................... F-5
Statements of Cash Flows for the period from November 13, 1990 (inception)
to December 31, 1991, and each of the years in the four year period ended
December 31, 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996 (unaudited)............................................................ F-6
Notes to Financial Statements................................................... F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mansur Industries Inc.:
We have audited the accompanying balance sheets of Mansur Industries Inc. (a
development stage company) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' (deficit) and cash flows for the period
from November 13, 1990 (inception) to December 31, 1991, each of the years in
the four-year period ended December 31, 1995, and the related statements of
operations, stockholders' (deficit) and cash flows for the period from November
13, 1990 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mansur Industries Inc. as of
December 31, 1994 and 1995 and the results of its operations and its cash flows
for the period from November 13, 1990 (inception) to December 31, 1991, each of
the years in the four-year period ended December 31, 1995 and for the period
from November 13, 1990 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
January 19, 1996
F-2
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS December 31, December 31, June 30,
1994 1995 1996
------------- ------------ -----------
(unaudited)
Current assets:
Cash $ 20,766 916,383 640,592
Inventory 98,593 193,838 412,431
Other assets 85,810 18,290 176,425
---------- ---------- ----------
Total current assets 205,169 1,128,511 1,229,448
Mortgage note receivable 200,000 0 0
Property and equipment, net 351,773 324,431 308,810
Intangible assets, net 0 0 24,454
---------- ---------- ----------
551,773 324,431 333,264
Total Assets $ 756,942 1,452,942 1,562,712
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 6,007 219,478 382,878
Due to officers/ shareholders 250,000 250,000 0
Convertible notes payable 0 0 1,012,500
Interest payable 45,684 0 2,250
Current installments of long-term debt 43,637 45,846 48,786
---------- ---------- ----------
Total current liabilities 345,328 515,324 1,446,414
Long-term debt, excluding current installments 700,011 154,165 129,014
---------- ---------- ----------
Total liabilities 1,045,339 669,489 1,575,428
---------- ---------- ----------
Convertible redeemable preferred stock, $1 par value.
Authorized 1,500,000 shares, issued and
outstanding 580,000 and 490,000 in 1994
and 1995 respectively. 633,929 2,573,863 0
---------- ---------- ----------
Stockholders' (deficit):
Common stock, $0.001 par value. Authorized
25,000,000 shares, issued and outstanding
2,000,000; 2,673,129 and 3,351,309 shares
for 1994, 1995 and 1996 respectively 2,000 2,673 3,351
Additional paid-in capital (12,257) 438,131 3,560,948
Deficit accumulated during the development
stage (912,069) (2,231,214) (3,577,015)
---------- ---------- ----------
Total stockholders' (deficit) (922,326) (1,790,410) (12,716)
---------- ---------- ----------
Total liabilities and stockholders'
(deficit) $ 756,942 1,452,942 1,562,712
========== ========== ==========
See accompanying notes to financial statements.
F-3
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
November 13, 1990 Year ended December 31, Six Months Ended November 13, 1990
(inception) through June 30, (inception)
December 31, ------------------------------------------ ----------------------- through
1991 1992 1993 1994 1995 1995 1996 June 30, 1996
------------------- ------- -------- -------- ---------- ----------- ----------- -----------------
(unaudited) (unaudited) (unaudited)
Operating expenses:
General and
administrative $ 8,502 8,971 81,886 268,414 907,393 418,079 622,641 1,897,807
Research and
development 128,439 31,924 69,256 178,146 393,874 162,732 365,435 1,167,074
---------- --------- -------- --------- --------- --------- --------- ----------
Total operating
expenses 136,941 40,895 151,142 446,560 1,301,267 580,811 988,076 3,064,881
---------- --------- --------- --------- ---------- --------- --------- ----------
Loss from
operations (136,941) (40,895) (151,142) (446,560) (1,301,267) (580,811) (988,076) (3,064,881)
---------- --------- --------- --------- ---------- --------- --------- ----------
Interest expense - (16,299) (16,360) (46,312) (63,528) (38,259) (24,179) (166,678)
Conversion expense on
redeemable preferred
stock - - - - - - (344,631) (344,631)
Interest Income - - - - 45,650 11,797 11,085 56,735
Loss on disposal of
property and
equipment - (39,560) (18,000) - - - - (57,560)
---------- ---------- --------- --------- ---------- ---------- --------- ----------
Net loss (136,941) (96,754) (185,502) (492,872) (1,319,145) (607,273)(1,345,801) (3,577,015)
Dividends on
redeemable
preferred stock - - (8,328) (53,929) (222,067) (75,066) (147,000) (431,324)
---------- ---------- --------- --------- ---------- ---------- --------- ----------
Net loss to common
shares $ (136,941) (96,754) (193,830) (546,801) (1,541,212) (682,339)(1,492,801) (4,008,339)
========== ========== ========== ========= ========== ========== ========= ==========
Net loss per
common share $ (0.07) (0.05) (0.10) (0.27) (0.66) (0.34) (0.53)
========== ========== ========== ========= ========== ========== =========
Weighted average
shares
outstanding 2,000,000 2,000,000 2,000,000 2,000,000 2,335,140 2,000,000 2,799,071
========== ========== ========== ========= ========== ========== =========
See accompanying notes to financial statements.
F-4
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
November 13, 1990
(inception) through Year ended December 31,
December 31,
1991 1992 1993 1994 1995
------------------ -------- ---------- --------- -----------
Cash used in operating activities:
Net loss $ (136,941) (96,754) (185,502) (492,872) (1,319,145)
Adjustments to reconcile net loss
to cash used in operating activities:
Loss on sale of property - 31,680 - - -
Write-off of equipment and patent 69,965 7,880 - - -
Depreciation - - - 18,056 42,404
Common Stock issued for services - - - - 16,400
Changes in operating assets and
liabilities:
Inventory (5,095) (23,205) (29,838) (68,755) (95,245)
Other assets 1,318) (1,174) (7,067) (76,251) (7,884)
Intangible assets - - - - -
Accounts payable and accrued
expenses 1,790 (1,666) 8,461 12,415 167,786
Advances from customer 11,500 16,800 - - -
--------- --------- --------- --------- ----------
Net cash used in operating
activities (60,099) (66,439) (213,946) (607,407) (1,195,684)
--------- --------- --------- --------- ----------
Investing activities:
Purchase of property and equipment (6,207) (4,208) (43,157) (48,227) (15,062)
Proceeds from mortgage note receivable - - - - 200,000
Net proceeds from sale of property - 68,320 - - -
--------- --------- --------- --------- ----------
Net cash provided (used) by
investing activities (6,207) 64,112 (43,157) (48,227) 184,938
--------- --------- --------- --------- ----------
Financing activities:
Proceeds from notes payable and line of credit 68,911 52,627 24,860 500,000 -
Repayment of notes payable - (15,000) - (9,262) (43,637)
Conversion expense on preferred stock converted
into common stock - - - - -
Proceeds from issuance of preferred stock - - 380,000 - 1,950,000
--------- --------- --------- --------- ----------
Net cash provided by financing 68,911 37,627 404,860 490,738 1,906,363
activities
--------- --------- --------- --------- ----------
Net increase (decrease) in cash 2,605 35,300 147,757 (164,896) 895,617
Cash, beginning of period - 2,605 37,905 185,662 20,766
--------- --------- --------- --------- ----------
Cash, end of period $ 2,605 37,905 185,662 20,766 916,383
========= ========= ========= ========= ==========
November 13, 1990
Six Months Ended (inception) through
June 30, June 30,
1995 1996 1996
---------------------------- -------------------
(unaudited) (unaudited) (unaudited)
Cash used in operating activities:
Net loss (607,273) (1,345,801) (3,577,015)
Adjustments to reconcile net loss
to cash used in operating activities:
Loss on sale of property - - 31,680
Write-off of equipment and patent - - 77,845
Depreciation 20,934 22,396 82,856
Common Stock issued for services 6,400 105,000 121,400
Changes in operating assets and
liabilities:
Inventory (85,366) (218,593) (440,731)
Other assets (1,231) (158,135) (251,829)
Intangible assets - (24,454) (24,454)
Accounts payable and accrued
expenses (38,739) 165,650 354,436
Advances from customer - - 28,300
--------- --------- ---------
Net cash used in operating
activities (705,275) (1,453,937) (3,597,512)
--------- --------- ---------
Investing activities:
Purchase of property and equipment (7,828) (6,775) (123,636)
Proceeds from mortgage note receivable 200,000 - 200,000
Net proceeds from sale of property - - 68,320
--------- --------- ---------
Net cash provided (used) by
investing activities 192,172 (6,775) 144,684
--------- --------- ---------
Financing activities:
Proceeds from notes payable and line of credit - 1,012,500 1,658,898
Repayment of notes payable (22,765) (172,210) (240,109)
Conversion expense on preferred stock
converted into common stock - 344,631 344,631
Proceeds from issuance of preferred stock 1,950,000 0 2,330,000
--------- --------- ---------
Net cash provided by financing
activities 1,927,235 1,184,921 4,093,420
--------- --------- ---------
Net increase (decrease) in cash 1,414,132 (275,791) 640,592
Cash, beginning of period 20,766 916,383 -
--------- --------- ---------
Cash, end of period 1,434,898 640,592 640,592
========= ========= =========
Supplemental disclosures of noncash investing and financing activities:
As discussed in note 7(d), in November, 1990, the Company issued 2,000,000
shares of common stock for real estate and equipment having an aggregate market
value of $52,000. In addition, the officer assigned to the Company ongoing
research and development and rights to patents and patents pending.
During April 1992, the Company sold real property for $120,000 in cash and
a $200,000 mortgage note receivable, as discussed in note 2.
In December 1993, the Company issued preferred stock in exchange for
$200,000 of notes payable.
In July 1994, the Company purchased equipment, issuing a note payable to
the seller in the amount of $252,910 (see note 5).
During 1995, convertible preferred stock in the amount of $580,000 and
related accrued dividends in the amount of $76,729 were converted to common
stock (see note 7).
During 1996, convertible preferred stock in the amount of $2,374,596 and
related accrued dividends in the amount of $346,269 and a conversion expense of
12% in the amount of $344,631 were converted to common stock (note 7).
See accompanying notes to financial statements.
F-5
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
From November 13, 1990 (inception) to June 30, 1996
Preferred stock Common stock Deficit
---------------------- -------------------------------- accumulated
Additional during the Total
paid-in development stockholders'
Shares Amount Shares Par capital stage (deficit)
------ ------ ------ --- ------- ----- -------
Balance at November 13, 1990 (inception) - $ - - $ - $ - $ - $ -
Issuance of common stock to an officer in
exchange for machinery and real estate
valued at market and rights to ongoing
research and development patents and - -
patent pending 2,000,000 2,000 50,000 - 52,000
Net loss - - - - - (136,941) (136,941)
--------- ---------- --------- --------- --------- ---------- ----------
Balance at December 31, 1991 - - 2,000,000 2,000 50,000 (136,941) (84,941)
Net loss - - - - - (96,754) (96,754)
--------- ---------- --------- -------- --------- ---------- ----------
Balance at December 31, 1992 - - 2,000,000 2,000 50,000 (233,695) (181,695)
Issuance of preferred stock in exchange
for cash 380,000 380,000 - - - - -
Issuance of preferred stock in satisfaction
of notes payable 200,000 200,000 - - - - -
Accrued dividends on preferred stock (8,328) (8,328)
Net loss - - - - - 185,502) (185,502)
--------- ---------- --------- -------- --------- ---------- ----------
Balance at December 31, 1993 580,000 580,000 2,000,000 2,000 41,672 (419,197) (375,525)
Accrued dividends on preferred stock 53,929 (53,929) (53,929)
Net loss - - - - - (492,872) (492,872)
--------- --------- --------- -------- --------- ---------- ----------
Balance at December 31, 1994 580,000 633,929 2,000,000 2,000 (12,257) (912,069) (922,326)
Issuance of preferred stock in exchange for
cash and note payable, net of costs 490,000 2,374,596 - - - - -
Accrued dividends on preferred stock 22,800 (22,800) (22,800)
Conversion of preferred stock and accrued
dividends to common stock (580,000) (656,729) 656,729 657 656,072 - 656,729
Accrued dividends on preferred stock 199,267 (199,267) (199,267)
Issuance of common stock in exchange for
services rendered - - 16,400 16 16,384 - 16,400
Net loss - - - - - (1,319,145) (1,319,145)
--------- --------- --------- -------- --------- ---------- ---------
Balance at December 31, 1995 490,000 2,573,863 2,673,129 2,673 438,132 (2,231,214) (1,790,409)
Issuance of common stock in exchange for - - 30,000 30 104,970 - 105,000
services rendered (unaudited)
Conversion of note payable into - - 20,000 20 99,980 - 100,000
common stock (unaudited)
Accrued dividends on preferred stock 147,000 (147,000) (147,000)
(unaudited)
Conversion of preferred stock and accrued (490,000) (2,720,863) 628,180 628 3,064,866 - 3,065,494
dividends to common stock (unaudited)
Net loss (unaudited) - - - - - (1,345,801) (1,345,801)
--------- --------- --------- -------- --------- ---------- ---------
Balance at June 30, 1996 (unaudited) 0 $ 0 3,351,309 $ 3,351 $3,560,948 $(3,577,015 $ (12,716)
========= ========= ========= ======== ========= ========== =========
See accompanying notes to financial statements.
F-6
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994 and December 31, 1995
and June 30, 1996 (unaudited)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mansur Industries Inc. (the "Company") is primarily engaged in research
and development, marketing, and initial production of industrial parts
cleaning equipment for use in automotive, marine, airline and general
manufacturing industries. The Company's focus is on the design,
development and manufacture of industrial cleaning equipment which
incorporate continuous recycling and recovery technologies for solvents
and solutions, thereby reducing the need to replace and dispose of
contaminated solvents and solutions. The Company is in the development
stage.
(A) OPERATIONS AND LIQUIDITY
The Company has been primarily engaged in research,
development, marketing, and initial production of its
products. The Company's ultimate success is dependent upon
future events, including the successful commercialization of
the Company's products, establishing sources for
manufacturing, marketing, and distribution channels, the
outcomes of which are currently indeterminable, and is also
dependent upon obtaining sufficient financing. As of June 30,
1996, the Company has realized no sales of its products.
As indicated in the accompanying financial statements as of
June 30, 1996, the Company's accumulated deficit totaled
$3,577,015 (unaudited). The Company has financed this
deficiency primarily through private placements of debt and
equity securities. Management expects that product sales will
commence during the second half of 1996 and that proceeds from
the notes payable are sufficient to fund working capital
requirements until sales of the Company's products reach
levels sufficient to fund working capital requirements.
In July 1996, the Company expects to file a registration
statement with the Securities and Exchange Commission (the
"SEC") in connection with a proposed initial public offering
("IPO") of shares of its common stock. In the event that the
IPO is not completed, the Company has plans to restructure
operations to minimize cash expenditures, and/or obtain
additional financing in order to continue support of its
activities. If adequate funds are not available from
additional sources of financing, the Company's business may be
materially adversely affected.
F-7
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(B) INVENTORY
Inventories are stated at the lower of cost or market using
the first-in, first-out method. Inventory consists of the
following.
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------------- ------------------- -----------------
(UNAUDITED)
Raw materials................ $13,937 55,738 233,456
Work in progress and
finished goods.......... 84,656 138,100 178,975
------------------- ------------------- -----------------
$98,593 193,838 412,431
=================== =================== =================
(C) PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated using the
straight-line method over the shorter of the lease term or the
estimated useful lives of the respective assets.
(D) INTANGIBLES
Patents, patent applications and rights are stated at
acquisition cost. Amortization of patents is recorded using
the straight-line method over the legal lives of the patents,
generally for periods ranging up to 17 years. The carrying
value of intangible assets is periodically reviewed by the
Company and impairments are recognized when the expected
future cash flows from operations derived from such intangible
assets is less than their carrying value.
(E) OTHER ASSETS
Included in other assets at December 31, 1994, were $75,404 in
stock offering costs incurred in connection with the Series A
preferred stock private placement (note 7). On June 30, 1996,
other assets consist primarily of costs relating to the
initial public offering of $94,251 and deposits with material
suppliers (note 8). (unaudited)
(F) FINANCIAL INSTRUMENTS (unaudited)
In assessing the fair value of financial instruments at June
30, 1996 the Company has used a variety of methods and
assumptions, which were based on estimates of market
conditions and risks existing at that time. The carrying
amount of long-term debt approximates fair value at June 30,
1996. For certain instruments, including accounts payable and
accrued expenses, and short-term debt, the carrying amount
approximates fair value due to their short maturity.
F-8
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(G) RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of costs
incurred in connection with engineering activities related to
the development of industrial parts cleaning machinery and are
expensed as incurred.
(H) INCOME TAXES
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be applied to
taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
(I) EARNINGS PER SHARE DATA
The computation of loss per share in each year is based on the
weighted average number of common shares outstanding. When
dilutive, convertible preferred stock and convertible notes
are included as common share equivalents using the if
converted method. As these instruments have an anti-dilutive
effect for the years presented, they are not included in the
weighted average calculation. Primary and fully diluted
earnings per share are the same for each of the years
presented.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities, if any, at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(2) MORTGAGE NOTE RECEIVABLE
During April 1992, the Company sold real property for $120,000 in cash
and a $200,000 mortgage note receivable. The note bore interest at a
rate of 12 percent per annum payable monthly with the principal due at
maturity, being April 27, 1997. The interest received on the mortgage
note receivable was assigned by the Company to repay interest due on an
unsecured note payable and dividends on certain of the preferred stock.
In April 1995, the balance of the note was received in full.
F-9
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment was as follows:
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 USEFUL LIFE
---------------- --------------- -------------- -------------
(UNAUDITED)
Furniture and equipment............. $ 7,289 20,433 23,709 5 Years
Machinery and equipment............. 351,688 353,606 357,105 10 Years
Leasehold improvements.............. 10,852 10,852 10,852
---------------- --------------- --------------
369,829 384,891 391,666
Less accumulated depreciation....... 18,056 60,460 82,856
---------------- --------------- --------------
$351,773 324,431 308,810
================ =============== ==============
(4) DUE TO OFFICERS/SHAREHOLDERS
(A) NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consists of the
following:
12% unsecured note payable $ 100,000
Note payable to chief executive officer 150,000
-------
$ 250,000
The 12% unsecured notes payable required interest payments
monthly, with principal due at maturity. The note matured on
December 31, 1995 and was renewed for one year. Pursuant to an
amendment to the note signed in January 1996, the note was
converted into common stock at a price of $5 per share (note
7).
Advances made by the chief executive officer are pursuant to a
$200,000 line of credit agreement signed in 1990. Under the
terms of the agreement, interest is accrued at a variable rate
not to exceed 10 percent per annum nor fall below 6 percent
per annum negotiated annually. The rate for 1994 and 1995 was
6 percent. The note had a maturity date of December 31, 1995
and was renewed for one year to mature on December 31, 1996.
The note payable to the chief executive officer was paid in
full during May of 1996 (unaudited).
(B) CONVERTIBLE NOTES PAYABLE (UNAUDITED)
In June 1996, the Company issued cumulative convertible
redeemable notes payable in the amount of $1,012,500, of which
$303,750 was due to certain directors of the Company. The
notes bear interest of 4% per annum until September 1996 and
12% thereafter. The notes will be automatically converted into
common stock simultaneously with the initial public offering
F-10
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
of the Company at a price of $6.75 per share. The Company may
redeem these notes in full at any time at a price equal to the
outstanding principal amount plus interest accrued thereon.
Upon the conversion of the notes into common stock resulting
from an IPO, a commission equalling 10% of the converted
principal balance and a nonaccountable expense allowance
equalling 3% of the converted principal balance is payable.
(5) LONG-TERM DEBT
DECEMBER 31,
-------------------------------- JUNE 30,
1994 1995 1996
--------------- -------------- ---------------
(UNAUDITED)
Long-term debt consists of the following:
12% unsecured convertible promissory note, due
May 10, 1996, converted into Series A preferred
stock in 1995 (note 7)............................... $500,000
12.5% note payable in monthly installments of $5,690,
including interest due August 4, 1999, secured by
equipment with a depreciated cost of $230,277 on
June 30, 1996 (unaudited)............................ 243,648 200,011 177,800
Less current installments............................ 43,637 45,846 48,786
--------------- -------------- ---------------
Long-term debt, excluding current installments....... $700,011 154,165 129,014
=============== ============== ===============
The 12 percent unsecured convertible promissory note was converted into
100,000 shares of Series A preferred stock during 1995 and subsequently
converted to common stock in June 1996 (unaudited) (note 7).
The aggregate maturities of long-term debt for each of the four years
subsequent to June 30, 1996, are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------------------------------ -------------------------
1996 $ 23,635
1997 51,916
1998 58,791
1999 43,458
-------------------------
$177,800
=========================
F-11
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(6) INCOME TAXES
For the period from November 13, 1990 (inception) to June 30, 1996, the
operations of the Company generated net operating losses of
approximately $3,577,015 (unaudited) for financial reporting purposes.
Because the Company is in the development stage, all costs through 1995
have been capitalized for tax purposes. The only loss reported for tax
has been a $14,280 capital loss on the sale of real property in 1992.
This capital loss may be carried forward by the Company for up to five
years and will expire at the end of 1997. Capital losses carried
forward may only be used to offset future capital gains. The gross
amount of the deferred tax asset as of June 30, 1996 was approximately
$1,288,000 (unaudited), which consists primarily of capital loss
carryforwards, start-up costs, and research and experimental costs
capitalized for tax purposes. Since realization of these tax benefits
are not assured, a valuation allowance has been recorded against the
entire deferred tax asset balance. In addition, pursuant to the Tax
Reform Act of 1986, if certain substantial changes in ownership should
occur there would be an annual limitation on the amount of tax
attribute carryforwards which can be utilized in the future.
(7) STOCKHOLDERS' DEFICIT
(A) "SERIES A" PREFERRED STOCK
In April 1995, the Company issued 490,000 shares of 12 percent
cumulative convertible redeemable preferred stock (the "Series
A") as part of a second private placement at an offering price
of $5 per share. The issuance raised $1,950,000 in cash and
converted the $500,000 unsecured convertible promissory note
(see note 5) into Series A shares.
On April 27, 1996, the board of directors of the Company
approved the early redemption of all of the Series A preferred
stock outstanding as of May 31, 1996, at the redemption price
of $5 per share plus the aggregate amount of dividends accrued
through June 30, 1996 in the amount of $346,269 (unaudited)
and a conversion expense of 12% in the amount of $344,631
(unaudited). In June 1996, 100% of Series A shareholders
exercised their right to convert all of their preferred shares
together with their dividends in the amount of $743,164 into
common shares (unaudited).
(B) "FIRST SERIES" PREFERRED STOCK
In the fourth quarter of 1993, the Company issued 580,000
shares of 12 percent cumulative convertible redeemable
preferred stock (the "First Series" ) in a private placement.
On May 30, 1995, the board of directors of the Company
approved the redemption of all of the First Series preferred
stock outstanding as of June 30, 1995, at the redemption price
of $1 per share plus dividends accrued through June 30, 1995,
subject to the preferred shareholders' prior right to convert
such preferred stock into common stock of the Company. In June
1995, 100% of the First Series with cumulative dividends
thereon was converted into common stock, on a one for one
basis.
F-12
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(C) CONVERTIBLE NOTE PAYABLE (UNAUDITED)
In May 1996, the Company converted a $100,000 note payable
into common stock at a price of $5 per share pursuant to an
amendment to the note signed in January of 1996.
(D) COMMON STOCK
In November 1990, the Company issued 2,000,000 shares of
common stock with a par value of $0.001 per share to the
President of the Company for the President's assignment to the
Company of all ongoing research and development and the rights
to any related patents and patents pending, in addition to
real estate and equipment with an aggregate fair value of
$52,000 as part of the formation of the Company.
(8) COMMITMENTS
(A) LEASES
The Company leases operating facilities under fixed rent
operating leases. The facilities had a 24 month lease expiring
December 31, 1994 with a rent of $4,631 per month. The lease
was renewed under cancelable terms in October 1994 for an
additional two-year period at a monthly rent of $5,094. During
1994, the Company leased equipment under an operating lease
which expired in September 1995.
Total rent expense was as follows:
For the six months ended
June 30, 1996 (unaudited) $ 30,564
For the year ended December 31:
1995 $ 61,128
1994 55,572
1993 39,740
1992 24,835
From November 13 1990
(inception) to December 31, 1991. 14,540
(B) DUE TO OFFICER
In 1995, the Board of Directors of the Company declared an
incentive bonus payable to the President, Pierre G. Mansur in
the amount of $267,460. Payment of bonuses are subject to the
determination by the Board of Directors that the Company is
able to effectuate such payment without impeding the Company's
operations or development. As a result, $88,110 has been paid
and an amount of $179,350 has been accrued at December 31,
1995 and June 30, 1996 (unaudited).
F-13
MANSUR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
(C) SUPPLY AGREEMENT (unaudited)
On May 7, 1996, the Company entered into an agreement (the
"Supply Agreement" ) with a supplier (the "Supplier") pursuant
to which the Supplier agreed to supply to the Company, at the
Company's election, between 3,000 and 5,000 machine units per
year at established prices and in accordance with a delivery
schedule. The Company has agreed to pay $150,000 (the
"Advance"), $50,000 of which has been advanced through June
30, 1996. The total Advance may be credited against future
purchases under the Supply Agreement at the rate of $50 per
unit.
The Supply Agreement provides that the Company may
unilaterally terminate the contract in whole or in part for
cause or for convenience. In the event the Supply Agreement is
terminated by the Company for convenience, the Supplier will
be entitled to reimbursement of the costs it has incurred
through the date of termination and, if such termination
occurs prior to the delivery of 3,000 units, the Supplier will
be entitled to payment for units produced through the date of
termination and retain any unapplied amount of the Advance.
(9) PRODUCT FINANCING AGREEMENT (unaudited)
In May 1996, the Company entered into an agreement (the "Product
Financing Agreement") with a leasing company which agrees to purchase
machines produced by the Company and subsequently lease these machines
to customers on 60 month terms. The Company will market the machines
and provide the leasing company with credit information on potential
customers which they may either accept or reject. The Product Financing
Agreement states that the leasing company does not have recourse
against the Company for customer failures to discharge their
obligations to the leasing company unless the Company has breached and
failed to cure certain warranties.
Under the Product Financing Agreement, the Company has agreed to
provide periodic service for the machines and replace solvent used in
the machines. In addition, upon the leasing company's request, the
Company agrees to assist the leasing company in remarketing any
repossessed or surrendered equipment for a fee. At the end of each
customer lease, the Company has the option to purchase the machine from
the leasing company at its fair market value.
F-14
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-----------------
TABLE OF CONTENTS
PAGE
Prospectus Summary.............................................
Summary Combined Financial and Operating Data..................
Risk Factors...................................................
Concurrent Offering............................................
Use of Proceeds of Concurrent Offering.........................
Dilution.......................................................
Dividend Policy................................................
Capitalization.................................................
Selected Financial Data........................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................
Business.......................................................
Management.....................................................
Executive Compensation.........................................
Certain Transactions...........................................
Principal Shareholders.........................................
Description of Capital Stock...................................
Shares Eligible for Future Sale................................
Plan of Distribution...........................................
Underwriting of the Concurrent Offering........................
Legal Matters..................................................
Experts........................................................
Additional Information.........................................
Index to Financial Statements.................................. F-1
----------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
150,000 SHARES
MANSUR INDUSTRIES INC.
COMMON STOCK
----------
PROSPECTUS
----------
FIRST ALLIED
SECURITIES, INC.
--------------, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this registration statement, excluding the Underwriter's
non-accountable expense allowance, will be as follows:
Securities and Exchange Commission registration fee ................ $ 6,000
NASD filing fee..................................................... 1,465
Printing and engraving expenses..................................... 50,000
Accounting fees and expenses........................................ 35,000
Legal fees and expenses............................................. 125,000
NASDAQ National market listing fees................................. 6,500
Fees and expenses (including legal fees) for qualifications under
state securities laws ........................................... 30,000
Registrar and Transfer Agent's fees and expenses.................... 5,000
Miscellaneous....................................................... 15,535
---------
Total............................................................... $ 274,500
=========
All amounts except the Securities and Exchange Commission registration fee
and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS PROSPECTUS
The Registrant has authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Articles of Incorporation provide that the
Registrant shall indemnify and may insure its officers and directors to the
fullest extent not prohibited by law. The Registrant has also entered into an
agreement (the form of which is filed as Exhibit 10.3 hereto) with each of its
directors and executive officers wherein it has agreed to indemnify each of them
to the fullest extent permitted by law. In general, Florida law permits a
Florida corporation to indemnify its directors, officers, employees and agents,
and persons serving at the corporation's request in such capacities for another
enterprise, against liabilities arising from conduct that such persons
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriter has agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the offering, including
certain liabilities under the Securities Act of 1933, as amended.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below are the dates, number of shares and purchase prices per
share of all shares of capital stock sold by the Company during the past three
years:
ISSUANCE OF FIRST SERIES PREFERRED STOCK
DATE NUMBER OF SHARES PRICE
- --------------------- ----------------------- ------------------
October 1993 245,000(1) $1
November 1993 115,000(2) $1
December 1993 20,000(3) $1
- ---------------------
(1) Such figure represents shares issued to a group of accredited investors
comprised of Weymouth Investments, Mark J. Bryn, Timothy P. Gilbert,
Nicholas Milazzo, John R. Tormondsen, Ronald J. Marks and Jack Milazzo.
(2) Such figure represents shares issued to a group of accredited investors
comprised of Crestwell Corporation and George V. Hindy. (3) Such figure
represents shares issued to a group of accredited investors comprised of
Robert M. & Angela M. Downey and Richard T. & John T. Downey.
EXCHANGE OF PROMISSORY NOTES FOR COMMON STOCK
DATE NUMBER OF SHARES PRICE
- --------------------- ----------------------- ------------------
December 1993 200,000(1) $1
May 1996 20,000 $5
- --------------------
(1) Such figure represents 100,000 shares of the Company's Common Stock issued
in exchange for a $100,000 Promissory Note issued in favor of Frank Sanci;
and 100,000 shares of the Company's Common Stock issued in exchange for
$100,000 of a $200,000 Promissory Note issued in favor of Philip Salvatore.
(2) Such figure represents 20,000 shares of the Company's Common Stock issued
in exchange for the remaining $100,000 principal amount of a $200,000
Promissory Note issued in favor of Philip Salvatore.
ISSUANCE OF SERIES A PREFERRED STOCK
DATE NUMBER OF SHARES PRICE
- --------------------- ----------------------- ------------------
April 1995 390,000(1) $5
- ---------------------
(1) Such figure represents shares issued to a group of accredited investors
comprised of Landmark Services, Mark J. Bryn, First Malro, Timothy P.
Gilbert, Nicholas Milazzo, John R. Tormondsen, Ronald J. Marks, Jack
Milazzo, George V. Hindy, Joseph E. Jack, C. Steven Duncker, Antonin &
Adele Tutter, Said H. Mouawad, Artur Sella, Patrick Buhse, Maria G.
Jackson, Stanley Krueger, Paul H. Davis, Julian & Sydonia Nacron, Gerald
Michelak, James J. & Paul E. Downey, Vincent Pacella, Peter H. Burger,
Derek Lee, Peter L. Polito, Jonathan Savitz, Caballo Grande Investments,
Howard J. Gilbert and William S. Gilbert.
II-2
EXCHANGE OF PROMISSORY NOTES FOR SERIES A PREFERRED STOCK
DATE NUMBER OF SHARES PRICE
- --------------------- ----------------------- ------------------
April 1995 100,000(1) $5
- ---------------------
(1) Such figure represents 100,000 shares of Series A Preferred Stock issued in
exchange for a $500,000 12% Secured Convertible Promissory Note, dated as
of November 1994, issued in favor of Imperial Trust.
CONVERSION OF FIRST SERIES PREFERRED STOCK INTO COMMON STOCK
DATE NUMBER OF SHARES PRICE
- --------------------- ----------------------- ------------------
April 1995 456,729 $1
- ---------------------
(1) Such figure includes (i) 380,000 shares of Common Stock issued upon
conversion of 380,000 shares of First Series Preferred Stock and (ii)
76,729 shares of Common Stock issued in satisfaction of dividends with
respect to the First Series Preferred Stock, which accrued at a rate of 12
percent from the date of issuance until the date of conversion.
ISSUANCE OF COMMON STOCK
DATE NUMBER OF SHARES PRICE
- --------------------- ----------------------- ------------------
June 1995 6,400(1) $5
December 1995 10,000(2) $1
April 1996 30,000(3) $3.50
- -------------------------
(1) Such figure represents shares of the Company's Common Stock issued to
William R. Burdette and Edward A. Calt, as Placement Agents in connection
with the Series A Preferred Stock offering.
(2) Such figure represents shares of the Company's Common Stock issued to
Environmental Technologies BVI Limited for cancellation of any and all
rights of that certain Consulting Agreement, dated as of November 10, 1994.
(3) Such figure represents share of the Company's Common Stock issued to Elias
F. Mansur, Jan Hedberg and Joseph E. Jack, non-employee directors of the
Company, for previously rendered consulting services.
CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK
DATE NUMBER OF SHARES PRICE
- --------------------- ----------------------- ------------------
June 1996 628,180 $5
- ---------------------
(1) Such figure includes (i) 490,000 shares of Common Stock issued upon
conversion of 490,000 shares of Series A Preferred Stock; (ii) 69,254
shares of Common Stock issued in satisfaction of dividends with respect to
the Series A Preferred Stock, which accrued at a rate of 12 percent from
the date of issuance, through the maturity date of June 30, 1996; and (iii)
68,926 shares of Common Stock issued as a conversion expense to induce all
of the holders of the Series A
II-3
Preferred Stock to convert the Series A Preferred Stock into shares of
Common Stock as of June 30, 1996.
The aforementioned issuances and sales were made in reliance upon the
exemption from the registration provisions of the 1933 Act afforded by Sections
4(2) and/or 4(6) thereof and/or Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering. The Purchasers of the
securities described above acquired them for their own account and not with a
view to any distribution thereof to the public. The certificates evidencing the
securities bear legends stating that the shares may not be offered, sold or
transferred other than pursuant to an effective registration statement under the
1933 Act, or an exemption from such registration requirements. The Company will
place stop transfer instructions with its transfer agent with respect to all
such securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT DESCRIPTION
- ------- -------------------------------------------------------------------
1.1 Proposed form of Underwriting Agreement between the Registrant and First
Allied Securities Inc. (the "Underwriter")
3.1 Amended and Restated Articles of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Certificate for Shares of Common Stock, par value $.001*
4.3 Proposed form of Representatives' Warrant Agreement between the Registrant
and the Underwriter with form of warrant attached
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as
to the validity of the Common Stock being registered*
10.1 Registrant's Executive Incentive Plan
10.2 Master Lease and Distribution Agreement, effective August 1, 1996, among
the Registrant, The Valvoline Company and First Recovery
10.3 Form of Indemnification Agreement between the Registrant and each of its
directors and executive officers
10.4 Employment Agreement between Pierre G. Mansur and the Registrant dated
September 1, 1995
10.5 Employment Agreement between Paul I. Mansur and the Registrant dated
September 1, 1995
10.6 Employment Agreement between the Company and Charles W. Profilet, dated as
of November 27, 1995
10.7 Vendor Lease Plan Agreement between the Registrant and Oakmont Financial
Services, dated as of May 28, 1996
10.8 A Manufacture Agreement between the Registrant and EMJAC Industries, Inc.,
dated as of May 7, 1996
10.9 Lease Agreement, dated October 29, 1994, between Registrant and Marvin L.
Duncan
II-4
EXHIBIT DESCRIPTION
- ------- -------------------------------------------------------------------
10.10 Security Agreement between the Registrant and The CIT Group/Equipment
Financing, Inc. for one (1) TRUMPF TC 200 CNC Punching Machine, Serial No.
070080 with tooling package, dated as of October 25, 1995
10.11 Term Life Insurance Policy for Pierce G. Mansur with the Equitable Life
Assurance Society of the United States, dated as of November 9, 1994
10.12 Term Life Insurance Policy for Paul I. Mansur with the Equitable Life
Assurance Society of the United States, dated as of May 24, 1996
10.13 United States Patent No. 5,277,208 for Multi-Process Power Spray Washer
Apparatus dated January 11, 1994
10.14 United States Patent No. 5,349,974 for SystemOne(TM)Washer dated September
27, 1994
10.15 United States Patent Application No. 08/394,290 for Improved
SystemOne(TM)Washer allowed April 2, 1996
10.16 United States Patent No. 5,388,601 for Spray Gun Washer dated February 14,
1995
10.17 United States Patent No. 5,518,013 for Immersion Washer dated May 21, 1996
10.18 United States Patent Applications No. 08/364,785 for apparatus for
disposal of refuse by thermal oxidation allowed June 26, 1996
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to
be included in its opinion to be filed as Exhibit 5.1)*
23.2 Consent of KPMG Peat Marwick LLP
24.1 Reference is made to the Signatures section of this Registration Statement
for the Power of Attorney contained herein.
27.1 Financial Data Schedule
- ------------------------
* To be filed by amendment
II-5
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective dateof the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on July 23, 1996.
MANSUR INDUSTRIES INC.
By: /s/ PAUL I. MANSUR
-----------------------
Paul I. Mansur
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of Pierre G. Mansur and Paul I.
Mansur, respectively, his true and lawful attorney-in-fact, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including any
post-effective amendments, to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ PIERRE G. MANSUR Chairman of the Board and July 23, 1996
- --------------------- President
Pierre G. Mansur
/S/ PAUL I. MANSUR Director and Chief Executive Officer July 23, 1996
- --------------------- [Principal Executive and Financial Officer]
Paul I. Mansur
/S/ LYDIA G. HUBBELL Controller July 23, 1996
- --------------------- [Principal Accounting Officer]
Lydia G. Hubbell
/S/ ELIAS F. MANSUR Director July 23, 1996
- ---------------------
Elias F. Mansur
/S/ DR. JAN HEDBERG Director July 23, 1996
- ---------------------
Dr. Jan Hedberg
/S/ JOSEPH E. JACK Director July 23, 1996
- ---------------------
Joseph E. Jack
II-7
INDEX TO EXHIBITS
SEQUENTIAL
PAGE
EXHIBIT DESCRIPTION NUMBER
- --------------- --------------------------------------------------------------------- ------------------------
1.1 Proposed form of Underwriting Agreement between the
Registrant and First Allied Securities Inc. (the
"Underwriter")
3.1 Amended and Restated Articles of Incorporation of
Registrant
3.2 Bylaws of Registrant
4.3 Proposed form of Representatives' Warrant Agreement
between the Registrant and the Underwriter with form of
warrant attached
10.1 Registrant's Executive Incentive Plan
10.2 Master Lease and Distribution Agreement, effective August
1, 1996, among the Registrant, The Valvoline Company
and First Recovery
10.3 Form of Indemnification Agreement between the
Registrant and each of its directors and executive officers
10.4 Employment Agreement between Pierre G. Mansur and
the Registrant dated September 1, 1995
10.5 Employment Agreement between Paul I. Mansur and the
Registrant dated September 1, 1995
10.6 Employment Agreement between the Company and
Charles W. Profilet, dated as of November 27, 1995
10.7 Vendor Lease Plan Agreement between the Registrant and
Oakmont Financial Services, dated as of May 28, 1996
10.8 A Manufacture Agreement between the Registrant and
EMJAC Industries, Inc., dated as of May 7, 1996
10.9 Lease Agreement, dated October 29, 1994, between
Registrant and Marvin L. Duncan
10.10 Security Agreement between the Registrant and The CIT
Group/Equipment Financing, Inc. for one (1) TRUMPF TC
200 CNC Punching Machine, Serial No. 070080 with
tooling package, dated as of October 25, 1995
10.11 Term Life Insurance Policy for Pierce G. Mansur with the
Equitable Life Assurance Society of the United States,
dated as of November 9, 1994
10.12 Term Life Insurance Policy for Paul I. Mansur with the
Equitable Life Assurance Society of the United States,
dated as of May 24, 1996
10.13 United States Patent No. 5,277,208 for Multi-Process
Power Spray Washer Apparatus dated January 11, 1994
10.14 United States Patent No. 5,349,974 for SystemOne(TM)
Washer dated September 27, 1994
10.15 United States Patent Application No. 08/394,290 for
Improved SystemOne(TM) Washer allowed April 2, 1996
10.16 United States Patent No. 5,388,601 for Spray Gun Washer
dated February 14, 1995
10.17 United States Patent No. 5,518,013 for Immersion Washer
dated May 21, 1996
10.18 United States Patent Applications No. 08/364,785 for
apparatus for disposal of refuse by thermal oxidation
allowed June 26, 1996
23.2 Consent of KPMG Peat Marwick LLP
24.1 Reference is made to the Signatures section of this
Registration Statement for the Power of Attorney contained
herein.
27.1 Financial Data Schedule
- 2 -