UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
Commission File No. 000-21325
MANSUR INDUSTRIES INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
8425 S.W. 129TH TERRACE
MIAMI, FLORIDA 33156
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(Address of Principal Executive Offices)
(305) 232-6768
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(Issuer's Telephone Number, Including Area Code)
FLORIDA 65-0226813
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of the close of business on
November 13, 1996:
CLASS NUMBER OF SHARES OUTSTANDING
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Common Stock 4,601,309
MANSUR INDUSTRIES INC
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Balance Sheets-
September 30, 1996 and December 31, 1995
Statements of Operations-
For the Nine and three months ended
September 30, 1996 and 1995
Statements of Cash Flows-
For the nine months ended September 30, 1996 and 1995
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
Signatures
MANSUR INDUSTRIES INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1995 1996
(AUDITED) (UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 916 $ 371
Accounts receivable, net - 165
Inventories 194 525
Other assets 19 622
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Total current assets 1,129 1,683
Property and equipment, net 324 298
Intangible assets, net - 26
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Total Assets $ 1,453 $ 2,007
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LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses $ 219 $ 689
Due to officers/shareholders 250 -
Short term notes payable - 500
Convertible notes payable - 1,013
Interest payable - 9
Deferred revenue - 26
Current installments of long-term debt 46 50
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Total current liabilities 515 2,287
Long-term debt, excluding current installments 154 116
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Total liabilities 669 2,403
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Convertible redeemable preferred stock, $1 par value,
Authorized 1,500,000 shares, issued and outstanding
490,000 in 1995 2,574 -
Stockholders' deficit
Common stock, $0.001 par value. Authorized 25,000,000
shares, issued and outstanding 2,663,129 and 3,351,309
shares for 1995 and 1996, respectively 3 3
Additional paid-in capital 438 3,561
Deficit accumulated during the development stage (2,231) (3,960)
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Total stockholders' deficit (1,790) (396)
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Total liabilities and stockholders' deficit $ 1,453 $ 2,007
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See accompanying notes to financial statements.
2
MANSUR INDUSTRIES INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
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Sales $ - $ 196 $ - $ 196
Cost of sales - 167 - 167
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Gross margin - 29 - 29
Operating expenses:
Research and product development 78 105 241 470
Sales, general and administrative 121 300 539 923
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199 405 780 1,393
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Loss from operations (199) (376) (780) (1,364)
Interest expense, net (7) 7 20 20
Exchange expense on redeemable
preferred stock - - - 345
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Net loss (192) (383) (800) (1,729)
Dividends on redeemable
preferred stock 74 - 149 147
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Net loss to common shares $ (266) $ (383) $ (949) $ (1,876)
================== ================== ================== ==================
Loss per share:
Net loss $ (0.10) $ (0.11) $ (0.43) $ (0.63)
================== ================== ================== ==================
Weighted average shares
outstanding 2,663,130 3,351,309 2,223,472 2,981,877
================== ================== ================== ==================
See accompanying notes to financial statements.
3
MANSUR INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
1995 1996
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Cash used in operating activities:
Net loss $ (800) $ (1,729)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 32 34
Common stock issued for services 6 105
Changes in operating assets and liabilities:
Inventory (219) (331)
Accounts receivable - (165)
Other assets 84 (604)
Intangible assets - (26)
Accounts payable and accrued expenses 20 505
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Net cash used in operating activities (877) (2,211)
Investing activities:
Purchase of property and equipment (9) (8)
Proceeds from mortgage note receivable 200 -
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Net cash provided by (used in) investing activities 191 (8)
Financing activities:
Proceeds from notes payable and line of credit - 1,513
Repayment of notes payable (79) (184)
Exchange expense on preferred stock exchanged
for common stock - 345
Proceeds from issuance of preferred stock 1,950 -
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Net cash provided by financing activities 1,871 1,674
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Net increase (decrease) in cash 1,185 (545)
Cash and cash equivalents, beginning of period 21 916
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Cash and cash equivalents, end of period $ 1,206 $ 371
=================== ===================
Supplemental disclosures of noncash investing and financing activities:
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
During 1996, the Company exchanged 490,000 shares of preferred stock for 628,180
shares of common stock in the amount of $2,374,596 plus related accrued
dividends of $346,260. In connection with this transaction, the Company recorded
an exchange expense of 12% in the amount of $344,631.
See accompanying notes to financial statements.
4
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mansur Industries Inc. (the "Company") is primarily engaged in 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 accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-QSB. Accordingly,
certain information and footnotes required by generally accepted accounting
principles for complete financial statements are not included herein. The
interim statements should be read in conjunction with the financial statements
and notes thereto included in the Company's initial public offering prospectus
dated September 27, 1996.
Interim statements are subject to possible adjustments in connection with the
annual audit of the Company's accounts for the full year 1996; in the Company's
opinion, all adjustments necessary for a fair presentation of these interim
statements have been included and are of a normal and recurring nature.
(2) SUBSEQUENT EVENTS
On October 2, 1996, the Company consummated an initial public offering (the
"IPO") of 1,000,000 shares of Common Stock pursuant to which the Company
received net proceeds of $5,620,465 and retired $500,000 in principal amount of
short term notes. In connection with the public offering, $1,012,500 in
principal amount of convertible notes were automatically converted into 150,000
shares of Common Stock. On November 13, 1996 the underwriter of the Company's
initial public offering exercised its over-allotment option to purchase
additional shares of Common Stock. Accordingly, on November 13, 1996 the Company
issued an additional 100,000 shares of registered common stock and received net
proceeds of $658,100. After giving effect to the IPO and the exercise of the
over-allotment, the pro forma working capital and cash equivalents of the
Company as of September 30, 1996 would have been $7,392,643 and $6,649,668,
respectively. The Company intends to use the proceeds of the public offering and
the over-allotment, and the cash generated from operations, if any, to finance
its proposed plan of operations.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements, including the notes thereto, contained elsewhere in this
10-QSB and the Company's prospectus dated September 27, 1996.
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. 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(R) 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.
RESULTS OF OPERATIONS
The Company was a development stage company and did not generate any operating
revenues prior to June 30, 1996. Therefore, comparison between the periods
presented is not meaningful in certain instances.
The Company commenced its planned principal operations in July 1996 and,
accordingly, in both the three month and nine month period ended September 30,
1996 the Company generated sales of $196,118.
Cost of sales, as a percentage of net sales, were 85.1% for the three and nine
month periods ended September 30, 1996. Cost of sales is comprised of direct
material cost, direct labor cost, and manufacturing overhead expenses. As the
number of units produced increase, the Company anticipates that the cost of
sales as a percentage of sales should decrease as the fixed costs of production
are being spread over a higher volume of sales.
The Company's research and product development expenses for the three and nine
month periods ended September 30, 1996 increased 34% and 95% to $104,675 and
$470,110, respectively, from the comparable periods in 1995. The increase in
expense during the three and nine month periods ended September 30, 1996 over
the same period in 1995 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 earlier period. During 1996, the Company
manufactured and shipped a number of SystemOne(R) Washers to various facilities
to test market receptivity.
The Company's selling, general and administrative expenses for the three and
nine month periods ended September 30, 1996 increased 147% and 71% to $300,411
and $923,052, respectively, from the comparable periods in 1995. The increase in
expense during the quarter ended September 30, 1996 over the same period in 1995
is primarily attributable to the Company's hiring of additional management,
sales and marketing staff in anticipation of and the commencement of the
Company's operations. The increase in expense during the current nine month
period over the comparable 1995 period is due to the hiring of additional sales
and marketing staff and the Company's grant of an aggregate of 30,000 shares of
Common Stock to its three independent directors of the Company in exchange for
certain consulting services. The Company anticipates that its monthly selling,
general and administrative expenses will continue to increase over the next
twelve months as the Company expands in accordance with its proposed business
plan. However, a portion of the selling, general and administrative expenses are
considered fixed; therefore, the Company does anticipate that selling, general
and administrative expenses as a percentage of revenue will decrease as the
fixed costs are spread over a higher volume of sales.
The Company's interest expenses, net for the nine months ended September 30,
1995 and 1996 were $19,770 and $20,585, respectively. The Company's interest
expense in the nine months ended September 30, 1996 decreased by 26% relative to
the nine months ended September 30, 1995 due to a relative decrease in the
indebtedness of the Company. The Company anticipates that its monthly interest
expense will decrease as a substantial portion of its indebtedness was retired
during the fourth quarter of 1996. In the nine months ended September 30, 1995
and 1996, the Company earned interest income of $29,285 and $15,818,
respectively, on cash deposits. The Company anticipates that its monthly
interest income from cash deposits will increase over the next twelve months as
the proceeds from the public offering will be invested in interest bearing cash
equivalent instruments until used in the Company's business operations.
In the nine months ended September 30, 1996, the Company incurred an exchange
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.
In the nine months ended September 30, 1996, the Company paid dividends on
redeemable preferred stock of $147,000 compared with $148,566 for the nine
months ended September 30, 1995.
6
As a result of the foregoing, the Company's net losses to common shares for the
three and nine month periods ended September 30, 1996 were $383,369 and
$1,876,170, respectively. The Company's net loss to common shares for the three
and nine month period ended September 30, 1995 were $266,269 and $948,608,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had a working capital deficiency of
$(604,810) and cash and cash equivalents of $371,103. However, on October 2,
1996, the Company closed on its initial public offering of 1,000,000 shares of
Common Stock pursuant to which the Company received net proceeds of $5,620,465
and retired $500,000 in principal amount of short term notes. In connection with
the public offering, $1,012,500 in principal amount of convertible notes were
automatically converted into 150,000 shares of Common Stock. On November 13,
1996 the underwriter of the Company's initial public offering exercised its
over-allotment option to purchase additional shares of Common Stock.
Accordingly, on November 13, 1996 the Company issued an additional 100,000
shares of registered common stock and received net proceeds of $658,100. After
giving effect to the initial public offering and the exercise of the
over-allotment, the pro forma working capital and cash equivalents of the
Company as of September 30, 1996 would have been $7,392,643 and $6,649,668,
respectively. The Company intends to use the proceeds of the public offering and
the over-allotment, 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 additional service centers as part of its product rollout.
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 IPO to execute its proposed plan of
operations over the next 12 months. 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.
Aside from meeting SystemOne(R) Washer purchase and lease orders, the Company's
material commitments principally relate to its obligations to pay the contract
manufacturers of its SystemOne(R) Washers (currently approximately $745-$905 per
SystemOne(R) Washer), make lease payments pursuant to certain real property and
equipment leases (currently approximately $9,135 per month), and make
installment payments pursuant to an equipment purchase finance agreement
(currently approximately $5,690 per month). The Company anticipates that its
material commitments will increase significantly over the next 12 months as a
result of the Company's planned expansion. Additionally, after the expiration or
termination of the pilot marketing program with First Recovery and Valvoline Oil
Company, if the subject parties do not enter into another agreement for the
marketing of SystemOne(R) Washers, the Company could, at First Recovery's sole
option, be required to acquire First Recovery's sublessor interest in certain
leases entered into by First Recovery under the pilot marketing program. In such
an event, the Company would be required to purchase First Recovery's interest
for the net present value of First Recovery's expected profit over the remaining
term of the equipment sublease assuming a 12% discount rate. 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 IPO to finance those
units.
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
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 September 30, 1996,
the Company's accumulated deficit totalled $3,960,384. Since its inception, the
Company has financed its operations through a variety of stock and debt
issuances and conversions and the sale of property, some of which are described
below.
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 580,000 shares of 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
a promissory note in the principal amount of $100,000.
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,
7
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 were automatically converted into 150,000 shares of
Common Stock upon the consummation of the public offering.
As of September 9, 1996, the Company issued $500,000 in principal amount of
Short Term Notes, bearing interest at the rate of 4% through September 1996 and
12% thereafter. The Short Term Notes were retired in connection with the public
offering.
As of October 2, 1996, the Company closed on its initial public offering
described above.
Without giving effect to the public offering, the Company's cash and cash
equivalents balance decreased $545,280 during the nine month period ended
September 30, 1996 to an ending balance of $371,103. For the nine month period
ended September 30, 1996, net cash used in operating activities were partially
offset by $1,512,500 of proceeds from notes payable and a line of credit.
Without giving effect to the public offering, at September 30, 1996, the Company
had a working capital deficiency of $(604,810).
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mansur Industries Inc.
Date: November 14, 1996 /S/ PAUL I. MANSUR
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PAUL I. MANSUR
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1996 /S/ RICHARD P. SMITH
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RICHARD P. SMITH
Vice President of Finance and
Chief Financial Officer
(Principal Financial Accounting Officer)