PROSPECTUS
1,000,000 SHARES
[MANSUR INDUSTRIES LOGO]
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. For information regarding the
factors considered in determining the initial public offering price of the
Common Stock, see "Underwriting." The Common Stock has been approved for
quotation on the Nasdaq Small Cap Market under the symbol "MANS."
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SEE "RISK FACTORS" ON PAGES 7 TO 13 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE TO Underwriting Proceeds to
PUBLIC Discounts(1) Company(2)
Per Share $7.50 $ .694 $6.806
Total(3) $7,500,000 $693,750 $6,806,250
</TABLE>
(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 $499,500 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 150,000 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 $8,625,000,
$797,813 and $7,827,187, 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 October 2, 1996 at the offices of
First Allied Securities Inc., New York, New York.
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[FIRST ALLIED SECURITIES INC. LOGO]
September 27, 1996
<PAGE>
[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 Washers.
THE FOLLOWING TEXT APPEARS AS A CAPTION: MANSUR VERSUS INDUSTRY
An artistic depiction of the Company's Series 500 SystemOne Washer appears
here.
An artistic depiction of a large recycling plant and the recycling process
employed by the Company's competitors 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.
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 pick-up, when pure solvent is delivered
and the contaminated solvent is generally shipped to regional refining
facilities (typically on four to sixteen week cycles).
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.
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THE COMPANY WILL FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS CERTIFIED BY AN INDEPENDENT AUDITING FIRM.
2
<PAGE>
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 150,000 SHARES OF COMMON STOCK HAS
NOT BEEN EXERCISED, (II) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 100,000
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
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. The Company believes that substantially all of
the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil. The effectiveness of
the Company's products in accomplishing the distillation of contaminated solvent
to yield pure solvent and a by-product comparable to used oil has been
extensively tested by the laboratory of a division of Valvoline Oil Company and
the independent engineering concern of Law Engineering and Environmental
Services, Inc.
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
3
<PAGE>
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 the test
period, the Company has, as of the date of this Prospectus, received firm
purchase 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); Greenwich
Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 Units). The Company finances its
SystemOne/trademark/ Washers through a third party leasing program with Oakmont
Financial Services. The Company commenced commercial sales and delivery of units
in July 1996 at an approximate price per unit of $2,700, and expects to deliver
substantially all units ordered to date prior to December 31, 1996. As of the
date of this Prospectus, the Company had delivered and recognized the sale of 44
units.
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 commenced 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 is 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.
4
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered .............................1,000,000 shares
Common Stock Outstanding After Offering ..........4,501,309(1)
Use of Proceeds by the Company ...................The Company intends to apply the net proceeds of the offering for the:
development of manufacturing capacity; development of marketing, sales and
service centers and a fleet of service vehicles; development of corporate
headquarters and research and development facilities; purchase of raw materials
and inventory; 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."
Nasdaq SmallCap Symbol ..................MANS
</TABLE>
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(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."
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.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information set forth below should be read in
conjunction with financial statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .......... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses ......... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ............ -- (16,299) (16,360) (46,312)
Exchange (expense) on redeemable
preferred stock .................. -- -- -- --
Loss on disposition of property and
equipment ........................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ......................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable preferred
stock ............................ -- -- (8,328) (53,929)
Net (loss) to common shares ....... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common share(2) .... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ................... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1995 1995 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 907,393 $ 418,079 $ 622,641
Research and development .......... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses ......... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ............ (17,878) (26,462) (13,094)
Exchange (expense) on redeemable
preferred stock .................. -- -- (344,631)
Loss on disposition of property and
equipment ........................ -- -- --
--------------- ------------- ---------------
Net (loss) ......................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable preferred
stock ............................ (222,067) (75,066) (147,000)
Net (loss) to common shares ....... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common share(2) .... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ................... 2,335,140 2,000,000 2,799,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
----------------------------------------------------------- -------------------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------------ ---------- ---------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL ..................... $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188 $ (216,966) $6,964,472
TOTAL ASSETS ........................ 338,225 265,932 493,751 756,942 1,452,942 1,562,712 7,671,650
CURRENT LIABILITIES.................. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
LONG-TERM LIABILITIES................ 0 0 0 700,011 154,165 129,014 129,014
TOTAL LIABILITIES ................... 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 7,168,722
</TABLE>
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(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) The information provided has been 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 1,000,000 shares of Common Stock
offered hereby at an 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." The information provided has not
been adjusted to reflect that the Company issued $500,000 in principal
amount of Short Term Notes as of September 9, 1996.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
6
<PAGE>
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. 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. As a
result of such efforts, from inception until June 30, 1996, the Company
accumulated a deficit of $3,577,015. 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 for a limited period of time and, thus,
have achieved only limited market acceptance. As of the date of this Prospectus,
the Company has received firm purchase orders for 196 SystemOne/trademark/
Washers and anticipates delivering substantially all of the ordered units prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units. 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
7
<PAGE>
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 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
8
<PAGE>
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 (the "Product Financing Agreement") 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. Specifically, the Company has agreed to make the
following warranties upon each sale to Oakmont, which warranties provide Oakmont
with a basis for recourse against the Company for certain customer failures: (i)
to the best of the Company's knowledge, the customer will use the
SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the
best of the Company's knowledge, the lease and related documents have been duly
executed and delivered; (iii) the lease incorporates all of the representations
and warranties made by the Company to the lessee; (iv) all dealings by the
Company with the lessee have been in accordance with all applicable laws and
regulations; (v) the conduct of the Company in developing a lease will not
subject Oakmont to suit or administrative proceeding; (vi) the lessee has no
defense, offset or counterclaims as to the enforcement of the lease arising out
of the conduct or failure to perform of the Company; (vii) the Company does not
know of any fact which indicates the uncollectibility of the lease; (viii) to
the best of the Company's knowledge the information provided by the lessee to
the Company and Oakmont is accurate and complete; (ix) except for funds which
Oakmont has agreed the Company is entitled to retain, the Company has not
retained any funds given to it by a lessee; and (x) title to the
SystemOne/trademark/ Washer has vested in Oakmont free and clear of any liens of
persons claiming by, through or under the Company. In the event the Company
breaches one of the foregoing warranties and fails to cure the breach, the
Product Financing Agreement requires the Company to purchase from Oakmont the
leased SystemOne/trademark/ Washer and Oakmont's rights under the lease
agreement 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. 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",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Marketing and Servicing Strategy."
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 the
utilization of its products as intended does not constitute the generation,
treatment or disposal of hazardous waste and that its products yield 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 utilization
of the Company's products constitutes the generation, treatment or disposal of
hazardous waste, if the residue is classified as hazardous waste, or if used
motor
9
<PAGE>
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 a number of third parties for its components and for the
manufacture of a large portion of its finished units. Although the Company has
entered into a SystemOne/trademark/ Washer supply agreement with a contract
manufacturer and believes that several alternative manufacturing sources are
readily available, failure by its current manufacturer 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 42
component and raw material suppliers and contract manufacturer, among other
things, to satisfy performance and quality specifications and dedicate
sufficient production capacity for components and raw materials 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 four 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 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
10
<PAGE>
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 45% 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."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO RELATED
PARTIES. Approximately $1,606,750 (25%) 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."
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 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 $5.91 (79%) per share of Common Stock
from the initial public offering price. See "Dilution."
INEXPERIENCE OF REPRESENTATIVE. The Representative was registered as a broker
dealer on March 29, 1994. The Representative was relatively inactive for a
period of time and was reactivated under its present ownership structure on
December 15, 1994. The Representative does not have extensive experience as an
underwriter of public offerings of securities, having 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. In the event the Representative does not
participate as a market maker the liquidity in the Company's Common Stock may be
adversely affected. See "Underwriting."
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
11
<PAGE>
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."
NO PRIOR TRADING MARKET; POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET;
DISCLOSURE RELATING TO LOW PRICED STOCKS. Prior to this offering there has been
no public trading market for the Common Stock. The Common Stock has been
approved for quotation on Nasdaq SmallCap Market; however, there can be no
assurance that a trading market will develop or, if developed, that it will be
maintained. In addition, there can be no assurance that the Company will in the
future meet the maintenance criteria for continued quotation of the securities
on Nasdaq SmallCap Market. The continued quotation criteria for Nasdaq SmallCap
Market includes, among other things, $2,000,000 in total assets, $1,000,000 in
capital and surplus, a public float of 100,000 shares with a market value equal
to $200,000, two market makers and a minimum bid price of $1.00 per share of
common stock. If an issuer does not meet the $1.00 minimum bid price standard,
it may, however, remain on the Nasdaq SmallCap Market if the market value of its
public float is at least $1,000,000 and the issuer has at least $2,000,000 in
equity. If the Company were removed from the Nasdaq SmallCap Market, trading, if
any, in the Common Stock would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it
more difficult to dispose of, and to obtain accurate quotations as to the value
of such securities.
In addition, if the Common Stock is delisted from trading on the Nasdaq
SmallCap Market and the trading price of the Common Stock is less than $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, according to recent regulations
adopted by the Securities and Exchange Commission, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price of less than
$5.00 per share, subject to certain exceptions), including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell their securities in the secondary market.
There can be no assurance that the Common Stock will not be delisted or treated
as a penny stock.
EFFECT 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 possess any voting
rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. Although the Company has elected not
to be subject to the provisions of the Florida Control
12
<PAGE>
Share Act, the Company may, by amending its by-laws, elect to become subject to
the provisions of the Florida Control Share Act in the future. 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. Upon the consummation
of this offering, the Company anticipates that it will have 4,501,309 shares of
Common Stock 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 3,501,309 shares of Common Stock are "restricted securities," as
that term is defined under Rule 144 promulgated under the Securities Act. Of
such remaining shares: (i) 2,656,729 shares are currently eligible for sale
under Rule 144; (ii) 150,000 shares are registered for resale pursuant to an
effective registration statement; and (iii) 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."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus contains
forward-looking statements, 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.
13
<PAGE>
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 $6,306,750 based
on an initial public offering price of $7.50 per share (approximately
$7,293,938 if the Underwriters' over-allotment option is exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS
- ------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Development of manufacturing capacity(1) .............. $ 1,000,000 16%
Development of marketing, sales and service centers
and service fleet(2) ................................ 1,250,000 20
Development of corporate headquarters and research and
development facilities(3) ........................... 700,000 11
Purchase of raw materials and inventory(4) ............ 1,750,000 28
Working capital and general corporate purposes(5) .... 1,606,750 25
---------------- ----------------
Total ............................................... $6,306,750 100%
================ ================
</TABLE>
- --------
(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.
(5) Such figure includes the cost of retiring the Short Term Notes. As of
September 9, 1996, the Company issued $500,000 in principal amount of Short
Term Notes in a private financing. The Short Term Notes bear interest at a
rate of 4% through September 1996 and 12% thereafter. The Short Term Notes
are due and payable on September 4, 1997, or, if earlier, upon the
consummation of this offering. The Company intends to utilize the proceeds
of the Short Term Notes for the same purposes as the proceeds of this
offering are to be applied, with the exception that none of the proceeds of
the Short Term Notes will be used to develop a corporate headquarters or a
research and development facility.
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 $987,000 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.
14
<PAGE>
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.
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 1,000,000 shares of
Common Stock offered hereby at an 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 $7,144,268, 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 $5.91 (79%) 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 ......... 1.60
Pro forma net tangible book value after offering 1.59
--------
Total dilution to new investors .................. $5.91
========
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 $8,131,455,
or $1.75 per share. This represents an immediate increase in net tangible book
value of $1.76 per share to the existing shareholders and an immediate dilution
of $5.75 (77%) 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 the conversion of the Convertible
Notes) by the existing shareholders and the new investors.
<TABLE>
<CAPTION>
PERCENT PERCENT AVERAGE
SHARES OF TOTAL AGGREGATE OF TOTAL PRICE
PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE
------------ ----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 3,501,309 77.8% $ 4,142,500 35.6% $1.18
New Investors ......... 1,000,000 22.2% 7,500,000 64.4% $7.50
------------ ----------- ---------------- ----------------
Total ................. 4,501,309 100.0% 11,642,500 100.0%
============ =========== ================ ================
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the new
investors will have paid $8,625,000 for 1,150,000 shares of Common Stock,
representing 67.5% of the total consideration for 24.7% of the total number of
shares outstanding.
15
<PAGE>
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 1,000,000 shares of Common Stock
in this offering at an initial public offering price of $7.50 per share and the
automatic conversion of the Convertible Notes. See Note 4(B) of Notes to
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
ACTUAL AS ADJUSTED
------------- --------------
<S> <C> <C>
DEBT:
Short-term debt .................................................... $1,012,500 $ 0(1)
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 4,501,309, shares issued and outstanding,
respectively ..................................................... 3,351 4,501
Additional paid in capital ......................................... 3,560,948 $10,741,236
Deficit accumulated during the development stage ................... 3,577,015 3,577,015
------------- --------------
Total stockholders' equity (deficit) .............................. (12,716) 7,168,722
------------- --------------
Total capitalization ............................................... $1,177,584 $ 7,346,522
============= =============
</TABLE>
- -----------
(1) The information provided has not been adjusted to reflect that the
Company issued $500,000 in principal amount of Short Term Debt as of
September 9, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
financial statements of the Company. The balance sheets 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 and each of the years in the four-year period ended December 31, 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."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development ..... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses .... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ........ -- (16,299) (16,360) (46,312)
Exchange (expense) on
redeemable preferred stock ... -- -- -- --
Loss on disposition of property
and equipment ................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ..................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable
preferred stock .............. -- -- (8,328) (53,929)
------------- ------------ ------------- -------------
Net (loss) to common shares ... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common
share(2) ..................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ............... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------- ------------------------------
1995 1995 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 907,393 $ 418,079 $ 622,641
Research and development ..... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses .... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ........ (17,878) (26,462) (13,094)
Exchange (expense) on
redeemable preferred stock ... -- -- (344,631)
Loss on disposition of property
and equipment ................ -- -- --
--------------- ------------- ---------------
Net (loss) ..................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable
preferred stock .............. (222,067) (75,066) (147,000)
--------------- ------------- ---------------
Net (loss) to common shares ... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common
share(2) ..................... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ............... 2,335,140 2,000,000 2,799,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------------------------------------------------------------- ---------------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
----------- --------- ---------- ----------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................ $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188 $ (216,966) $6,964,472
Total assets ................... 338,225 265,932 493,751 756,942 1,452,942 1,562,712 7,671,650
Current liabilities............. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
Long-term liabilities........... 0 0 0 700,011 154,165 129,014 129,014
Total liabilities .............. 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
Stockholders' equity (deficit):
Total stockholders' equity
(deficit) ................... (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 7,168,722
- -----------
</TABLE>
(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) The information provided has been 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 1,000,000 shares of Common Stock
offered hereby at an 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." The information provided has not
been adjusted to reflect the issuance by the Company of $500,000 in
principal amount of Short Term Debt as of September 9, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
17
<PAGE>
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 49% 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 anticipates that its monthly general and administrative expenses will
continue to increase over the next twelve months if the Company's operations
expand in accordance with its proposed business plan.
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(Trademark) Washers to various facilities to test market receptivity.
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 complete development and testing of various
of its products and to develop new products and concepts.
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
18
<PAGE>
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.
In the six months ended June 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.
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 (238%) 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
(121%) 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. The Company expects that it will incur significant additional
losses at least through December 31, 1996.
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.
19
<PAGE>
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.
Aside from meeting SystemOne/trademark/ Washer purchase and lease orders, the
Company's material commitments principally relate to its obligations to pay the
contract manufacturers of its SystemOne(Trademark) Washers (currently
approximately $745-$905 per SystemOne(Trademark) Washer), make lease payments
pursuant to certain real property and equipment leases (currently approximately
$7,940 per month), make installment payments pursuant to an equipment purchase
finance agreement (currently approximately $5,690 per month) and satisfy its
financial obligations under seven employment agreements (currently approximately
$38,835 per month). Upon consummation of this offering and the retirement of the
Short Term Notes from the proceeds thereof, 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, 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(Trademark) 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
20
<PAGE>
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 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
21
<PAGE>
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.
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 are due and payable on September 4, 1997,
or, if earlier, upon the consummation and out of the proceeds of this offering.
22
<PAGE>
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. The Company believes that substantially all of
the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil. The effectiveness of
the Company's products in accomplishing the distillation of contaminated solvent
to yield pure solvent and a by-product comparable to used oil has been
extensively tested by the laboratory of a division of Valvoline Oil Company and
the independent engineering concern of Law Engineering and Environmental
Services, Inc.
STRATEGY
The Company's strategy is to focus initially on the manufacture, marketing
and sale of its SystemOne(Trademark) 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(Trademark) 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
23
<PAGE>
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(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
24
<PAGE>
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(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.
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
25
<PAGE>
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. 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(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.
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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.
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
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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 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
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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 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.
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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. As of the date of this Prospectus, the Company was
procuring raw materials and components for its SystemOne(Trademark) Washers from
42 sources.
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 firm purchase
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);
Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 units). The Company commenced commercial sales
and delivery of units in July 1996 at an approximate price per unit of $2,700,
and anticipates delivering substantially all of the ordered units to date prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units.
In a parallel marketing strategy, to test the viability of the strategic
marketing alliance concept for its products, in August 1996 the Company
commenced a pilot program with First Recovery and Valvoline Oil Company, two
affiliates of Ashland Oil, pursuant to which First Recovery serves 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
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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 discharge their obligations to Oakmont unless the Company
has breached and failed to cure certain warranties. Specifically, the Company
has agreed to make the following warranties upon each sale to Oakmont, which
warranties provide Oakmont with a basis for recourse against the Company for
certain customer failures: (i) to the best of the Company's knowledge, the
customer will use the SystemOne/trademark/ Washer principally for commercial
purposes; (ii) to the best of the Company's knowledge, the lease and related
documents have been duly executed and delivered; (iii) the lease incorporates
all of the representations and warranties made by the Company to the lessee;
(iv) all dealings by the Company with the lessee have been in accordance with
all applicable laws and regulations; (v) the conduct of the Company in
developing a lease will not subject Oakmont to suit or
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administrative proceeding; (vi) the lessee has no defense, offset or
counterclaims as to the enforcement of the lease arising out of the conduct or
failure to perform of the Company; (vii) the Company does not know of any fact
which indicates the uncollectibility of the lease; (viii) to the best of the
Company's knowledge, the information provided by the lessee to the Company and
Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed
the Company is entitled to retain, the Company has not retained any funds given
to it by a lessee; and (x) title to the SystemOne/trademark/ Washer has vested
in Oakmont free and clear of any liens of persons claiming by, through or under
the Company. In the event the Company breaches one of the foregoing warranties
and fails to cure the breach, the Product Financing Agreement requires the
Company to purchase from Oakmont the leased SystemOne/trademark/ Washer and
Oakmont's rights under the lease 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
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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.
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 and an adjacent
5,500 square foot building located in Miami, Florida. The lease for the
10,000 square foot building (the "Primary Lease") commenced on January 1, 1995
and expires December 31, 1996. The Primary Lease provides for two renewal terms
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of two years. The Company's annual lease payments under the Primary Lease are
approximately $61,000, which amount does not include the Company's obligation to
pay all utility and service charges. The lease for the 5,500 square foot
building (the "Secondary Lease") commenced on September 1, 1996 and expires
August 30, 1998. The Company's annual lease payments under the Secondary Lease
are approximately $32,208, which amount does not include the Company's
obligation to pay all utility and service charges. The Company has the right to
cancel the Secondary Lease upon four months written notice. In addition, the
Company maintains a sales, distribution and light manufacturing center in a
1,692 square foot facility located in Pinellas Park, Florida (the "Sales
Lease"). The Sales Lease commenced on September 15, 1996 and expires on October
1, 1998. The Company's annual lease payments under the Sales Lease are
approximately $6,491.25, which amount does not include the Company's obligation
to pay all utility and service charges. 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 on 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 16 employees, of whom
five 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------------------------------------------------------------
<S> <C> <C>
Pierre G. Mansur ........ 44 Chairman of the Board and President
Paul I. Mansur .......... 45 Director and Chief Executive Officer
Richard P. Smith, C.P.A. 39 Vice President of Finance and Chief Financial
Officer
Charles W. Profilet .... 59 Vice President-Business Development
Elias F. Mansur ......... 53 Director
Dr. Jan Hedberg ......... 49 Director
Joseph E. Jack .......... 68 Director
</TABLE>
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 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.
35
<PAGE>
RICHARD P. SMITH has been the Chief Financial Officer of the Company since
September 1, 1996. From April 1987 to August 1996, Mr. Smith held various
positions, including Vice President, Chief Financial Officer, Treasurer,
Secretary, Director of Business Planning, and Controller of European Operations
of Telematics International, Inc., a manufacturer and supplier of intelligent
networking technologies and products. From August 1983 to April 1987, Mr. Smith
served as Manager of Internal Controls and Cost Analysis for Motorola, Inc., a
worldwide manufacturer of a diverse line of electronic equipment and components,
including communications systems, semiconductors, electronic controls and
computer systems. Motorola, Inc.'s securities are listed on the New York Stock
Exchange. From January 1980 to March 1981, Mr. Smith worked as an accountant for
Arthur Young and Co. C.P.A. Mr. Smith is a graduate of Illinois Wesleyan
University and holds a Masters of Business Administration degree from the
University of Illinois and a Masters of Finance degree from Cambridge
University.
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.
36
<PAGE>
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.
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
<TABLE>
<CAPTION>
LONG TERM
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------------------------
OTHER ANNUAL ALL OTHER
YEAR SALARY BONUS COMPENSATION(2) COMPENSATION
- --------------------------- ------- ---------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Mr. Pierre G. Mansur 1995 $66,000 $267,460(1) $6,605(2) $0
------- ---------- -------------- ---------------- ---------------
Chairman and President 1994 $66,000 $0 $550(2) $0
------- ---------- -------------- ---------------- ---------------
1993 $22,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
Mr. Paul I. Mansur 1995 $48,000 $0 $2,550(2) $0
------- ---------- -------------- ---------------- ---------------
Chief Executive Officer 1994 $48,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
1993 $5,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
</TABLE>
- -----------------------------------------------------------------------------
(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.
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
37
<PAGE>
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 July 1996, the Company entered into a one year employment agreement with
Mr. Richard Smith, which provides for an annual base salary of $110,000, a car
allowance of $400 a month, and a mobile telephone allowance of $150 a month. The
employment agreement provides that Mr. Smith is entitled to receive a minimum of
10,000 common stock purchase options comprised of: 5,000 options to be issued
upon the consummation of this offering and exercisable at the initial public
offering price, and 5,000 options to be issued on December 31, 1996 exercisable
at the then current market price of the common stock. Pursuant to the employment
agreement, if Mr. Smith 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. Smith is terminated without cause, he is entitled to
receive his current salary for four months or until he secures new employment,
whichever occurs first. In addition to the employment agreement, the Company and
Mr. Smith entered into a Non-Circumvention and Non-Disclosure Agreement.
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
38
<PAGE>
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 an 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.
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 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.
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.
39
<PAGE>
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 Executive Incentive Compensation 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.
40
<PAGE>
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 have, from time to
time, rendered consulting services to the Company in connection with
financing, marketing and technical matters. In April 1996, they were each
granted 10,000 shares of the Company's Common Stock, valued at $3.50 per share,
in exchange for such 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.
Under the terms of the line of credit, interest accrued at a rate of 6% in 1994,
1995 and the five month period ended 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. The
note evidencing the Debt had a maturity date of December 31, 1995, which
maturity date was extended to December 31, 1996. 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.
FUTURE TRANSACTIONS
Each of the transactions between the Company and each officer and shareholder
of the Company was made on terms no less favorable to the Company than those
that were available from unaffiliated
41
<PAGE>
third parties. All future transactions, including loans, between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated third parties.
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 issuance of shares upon the conversion of the
Convertible Notes and 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THIS OFFERING AFTER THIS OFFERING
---------------------------- ---------------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- ------------------------------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Mr. Pierre G. Mansur ................ 2,000,000 59.7% 2,000,000 44.4%
Mr. Paul I. Mansur .................. 0 * 0 *
Mr. Elias F. Mansur ................. 26,025 * 41,025(2) *
Dr. Jan Hedberg ..................... 20,000(1) * 35,000(1)(3) *
Mr. Joseph E. Jack .................. 22,820 * 37,820(2) *
Mr. Charles W. Profilet ............. 0 * 0 *
Mr. Richard P. Smith ................ 10,000(4) * 10,000(4) *
All Directors and Executive Officers
as a Group (6 persons) ............ 2,078,845(5) 61.9% 2,123,845(5) 47.2%
</TABLE>
- ------------------
* 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) Includes 15,000 shares of Common Stock issuable upon the conversion of a
Convertible Note held by Environmental Technologies BVI Limited in the
principal amount of $101,250, which conversion shall occur simultaneously
with the consummation of this offering.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of stock
options.
(5) See Notes (1) -(4).
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."
42
<PAGE>
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 Florida Control Share Act 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. Although the Company has elected not to be subject
to the provisions of the Florida Control Share Act, the Company may, by amending
its by-laws, elect to become subject to the provisions of the Florida Control
Share Act in the future. The Affiliated Transactions Act 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.
Mr. Pierre Mansur's initial acquisition of Common Stock was not subject to
the provisions of the Florida Control Share Act or the Florida Affiliated
Transactions Act. Future acquisitions of the Common Stock by Mr. Mansur will not
trigger the provisions of the Florida Control Share Act unless the Company has
elected to become subject to the provisions of the Florida Control Share Act.
Future acquisitions of the Common Stock by Mr. Mansur will also not trigger the
provisions of the Florida Affiliated Transactions Act provided any such
acquisition has been approved by a majority of the "disinterested directors" on
the Company's board of directors. Mr. Mansur is the Company's Chairman of the
Board and President.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the Florida Business Corporation Act
("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.
43
<PAGE>
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
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
Upon the consummation of this offering, the Company anticipates that it will
have 4,501,309 shares of Common Stock outstanding. The 1,000,000 shares of
Common Stock offered hereby 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 3,501,309 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: (i) 2,656,729 shares will become eligible for sale under Rule
144 90 days from the date of this Prospectus; (ii) 150,000 shares are registered
for resale pursuant to an effective registration statement; and (iii) 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
44
<PAGE>
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.
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.
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:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- -----------
<S> <C>
First Allied Securities Inc. ........................ 450,000
Josephthal Lyon & Ross Incorporated ................. 68,000
Southeast Research Partners, Inc. ................... 68,000
Baird Patrick & Co., Inc. ........................... 46,000
Brean Murray & Co., Inc. ............................ 46,000
First Equity Corporation ............................ 46,000
C.L. King & Associates, Inc. ........................ 46,000
Laidlaw Equities, Inc. .............................. 46,000
LT Lawrence & Co., Inc. ............................. 46,000
Sands Brothers & Co., Ltd. .......................... 46,000
Smith Moore & Co. ................................... 46,000
R.J. Steichen & Company ............................. 46,000
----------
Total .......................... 1,000,000
==========
</TABLE>
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 $.40 per share of Common Stock.
Such dealers may reallow a concession not in excess of $.10 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.
45
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. 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 150,000 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.
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 100,000 shares of Common Stock. The Representative's
Warrants are initially exercisable for shares of Common Stock at a price of
$9.00 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 was registered as a broker dealer on March 29, 1994. The
Representative was relatively inactive for a period of time and was reactivated
under its present ownership structure on December 15, 1994. The Representative
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.
46
<PAGE>
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 LLP, 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.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
F-1
<PAGE>
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 and each of the years in
the four-year period ended 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 and each
of the years in the four-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
January 19, 1996
F-2
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .................................................. $ 20,766 $ 916,383 $ 640,592
Inventory ............................................. 0 193,838 412,431
Other assets .......................................... 85,810 18,290 176,425
--------------- --------------- --------------
Total current assets ................................. 106,576 1,128,511 1,229,448
--------------- --------------- --------------
Mortgage note receivable ............................... 200,000 0 0
--------------- --------------- --------------
Property and equipment, net ............................ 351,773 324,431 308,810
Other assets ........................................... 98,593 0 0
Intangible assets, net ................................. 0 0 24,454
--------------- --------------- --------------
650,366 324,431 333,264
--------------- --------------- --------------
Total Assets ......................................... $ 756,942 1,452,942 1,562,712
=============== =============== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ................. $ 6,007 219,477 382,878
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 ............................ 345,328 515,323 1,446,414
--------------- --------------- --------------
Long-term debt, excluding current installments ........ 700,011 154,165 129,014
--------------- --------------- --------------
Total liabilities .................................... 1,045,339 669,488 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) 438,132 3,560,948
Deficit accumulated during the development stage ..... (912,069) (2,231,214) (3,577,015)
--------------- --------------- --------------
Total stockholders' (deficit) ........................ (922,326) (1,790,409) (12,716)
--------------- --------------- --------------
Total liabilities and stockholders' (deficit) ....... $ 756,942 $ 1,452,942 $ 1,562,712
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1991 1992 1993 1994
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative .$ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .. 128,439 31,924 69,256 178,146
--------------- ------------ ------------- -------------
Total operating expenses . 136,941 40,895 151,142 446,560
--------------- ------------ ------------- -------------
Loss from operations ..... (136,941) (40,895) (151,142) (446,560)
--------------- ------------ ------------- -------------
Interest expense ............ -- (16,299) (16,360) (46,312)
Exchange expense
on redeemable
preferred stock ........... -- -- -- --
Interest Income ............. -- -- -- --
Loss on disposal of property
and equipment ............. -- (39,560) (18,000) --
--------------- ------------ ------------- -------------
Net loss .................. (136,941) (96,754) (185,502) (492,872)
--------------- ------------ ------------- -------------
Dividends on redeemable
preferred stock ......... -- -- (8,328) (53,929)
--------------- ------------ ------------- -------------
Net loss to common
shares .................. $ (136,941) $ (96,754) $ (193,830) $ (546,801)
=============== ============ ============= =============
Net loss per common
share ................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
=============== ============ ============= =============
Weighted average shares
outstanding ............. 2,000,000 2,000,000 2,000,000 2,000,000
=============== ============ ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
----------------- JUNE 30,
1995 1995 1996 1996
---------- -------- -------- ------------
(UNAUDITED)(UNAUDITED)(UNAUDITED)
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative $907,393 $418,079 $622,641 $1,897,807
Research and development 393,874 162,732 365,435 1,167,074
--------------- ---------- -------- ----------
Total operating expenses . 1,301,267 580,811 988,076 3,064,881
--------------- ----------- -------- ---------
Loss from operations ..... (1,301,267) (580,811) 988,076) 3,064,881)
--------------- ----------- -------- ----------
Interest expense ............ (63,528) (38,259) (24,179) (166,678)
<PAGE>
Exchange 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 ............. -- -- -- (57,560)
--------------- ----------- -------- ----------
Net loss .................. (1,319,145) (607,273) (1,345,801) (3,577,015)
--------------- ----------- -------- ----------
Dividends on redeemable
preferred stock ......... (222,067) (75,066) (147,000) (431,324)
--------------- ----------- -------- ----------
Net loss to common
shares .................. $(1,541,212) $ (682,339)$(1,492,801) $(4,008,339)
=============== =========== =========== ===========
Net loss per common
share ................... $ (0.66) $ (0.34)$ (0.53)
=============== =========== =========== ===========
Weighted average shares
outstanding ............. 2,335,140 2,000,000 2,799,071
=============== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
FROM NOVEMBER 13, 1990 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFFERED STOCK COMMON STOCK
---------------------------- ------------------------
SHARES AMOUNT SHARES PAR
------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
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 patents pending .......... -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1991 ............ -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1992 ............ -- -- 2,000,000 2,000
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 ..
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1993 ............ 580,000 580,000 2,000,000 2,000
Accrued dividends on preferred stock .. 53,929
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1994 ............ 580,000 633,929 2,000,000 2,000
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
Conversion of preferred stock and
accrued dividends to common stock .... (580,000) (656,729) 656,729 657
Accrued dividends on preferred stock .. 199,267
Issuance of common stock in exchange
for services rendered ................ -- -- 16,400 16
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1995 ............ 490,000 2,573,863 2,673,129 2,673
Issuance of common stock in exchange
for services rendered (unaudited) .... -- -- 30,000 30
Conversion of note payable into common
stock (unaudited) .................... -- -- 20,000 20
Accrued dividends on preferred stock
(unaudited) .......................... 147,000
Exchange of preferred stock and accrued
dividends to common stock (unaudited) (490,000) (2,720,863) 628,180 628
Net loss (unaudited) ................... -- -- -- --
------------ -------------- ------------ ----------
Balance at June 30, 1996 (unaudited) ... 0 $ 0 3,351,309 $ 3,351
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE (DEFICIT)
---------- ---------------- -------------
<S> <C> <C> <C>
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 patents pending .......... 50,000 -- 52,000
Net loss ............................... -- (136,941) (136,941)
--------- ---------- ----------
Balance at December 31, 1991 ............ 50,000 (136,941) (84,941)
Net loss ............................... -- (96,754) (96,754)
-------- ---------- ----------
Balance at December 31, 1992 ............ 50,000 (233,695) (181,695)
Issuance of preferred stock in exchange
for cash ............................. -- -- --
Issuance of preferred stock in
satisfaction of notes payable ........ -- -- --
Accrued dividends on preferred stock .. (8,328) (8,328)
Net loss ............................... -- (185,502) (185,502)
-------- --------- ----------
Balance at December 31, 1993 ............ 41,672 (419,197) (375,525)
Accrued dividends on preferred stock .. (53,929) (53,929)
Net loss ............................... -- (492,872) (492,872)
-------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE (DEFICIT)
---------- ---------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994 ............ (12,257) (912,069) (922,326)
Issuance of preferred stock in exchange
for cash and note payable, net of
costs ................................ -- -- --
Accrued dividends on preferred stock .. (22,800) (22,800)
Conversion of preferred stock and
accrued dividends to common stock .... 656,072 -- 656,729
Accrued dividends on preferred stock .. (199,267) (199,267)
Issuance of common stock in exchange
for services rendered ................ 16,384 -- 16,400
Net loss ............................... -- (1,319,145) (1,319,145)
------------- --------------- ----------------
Balance at December 31, 1995 ............ 438,132 (2,231,214) (1,790,409)
Issuance of common stock in exchange
for services rendered (unaudited) .... 104,970 -- 105,000
Conversion of note payable into common
stock (unaudited) .................... 99,980 -- 100,000
Accrued dividends on preferred stock
(unaudited) .......................... (147,000) (147,000)
Exchange of preferred stock and accrued
dividends to common stock (unaudited) 3,064,866 -- 3,065,494
Net loss (unaudited) ................... -- (1,345,801) (1,345,801)
------------- --------------- ----------------
Balance at June 30, 1996 (unaudited) ... $3,560,948 $(3,577,015) $ (12,716)
============= =============== ================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION) YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------
DECEMBER 31,
1991 1992 1993 1994
-------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss ................................. $(136,941) $(96,754) $(185,502) $(492,872)
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
Common Stock issued for services ....... -- -- -- --
Changes in operating assets
and liabilities: ......................
Inventory .............................. (5,095) (23,205) (29,838) (68,755)
Other assets ........................... (1,318) (1,174) (7,067) (76,251)
Intangible assets ...................... -- -- -- --
Accounts payable and accrued expenses . 1,790 (1,666) 8,461 12,415
Advances from customer ................. 11,500 16,800 -- --
---------- -------- --------- ---------
Net cash used in
operating activities ................ (60,099) (66,439) (213,946) (607,407)
---------- -------- --------- ---------
Investing activities:
Purchase of property and equipment ...... (6,207) (4,208) (43,157) (48,227)
Proceeds from mortgage note receivable .. -- -- -- --
Net proceeds from sale of property ...... -- 68,320 -- --
---------- -------- --------- ---------
Net cash provided (used) by investing
activities .......................... (6,207) 64,112 (43,157) (48,227)
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)
Exchange expense on preferred stock
exchanged for common stock ............. -- -- -- --
Proceeds from issuance of
preferred stock ........................ -- -- 380,000 --
---------- -------- ---------- ---------
Net cash provided by
financing activities ................ 68,911 37,627 404,860 490,738
---------- -------- ---------- ---------
Net increase (decrease) in cash ...... 2,605 35,300 147,757 (164,896)
Cash, beginning of period ................. -- 2,605 37,905 185,662
---------- -------- ---------- ---------
Cash, end of period ....................... $ 2,605 $ 37,905 $ 185,662 $ 20,766
========== ======== ========= =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION) YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------
DECEMBER 31,
1991 1992 1993 1994
-------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss $(1,319,145) $(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 ............................ 42,404 20,934 22,396 82,856
Common Stock issued for services ....... 16,400 6,400 105,000 121,400
Changes in operating assets
and liabilities: ......................
Inventory .............................. (95,245) (85,366) (218,593) (440,731)
Other assets ........................... (7,884) (1,231) (158,135) (251,829)
Intangible assets ...................... -- -- (24,454) (24,454)
Accounts payable and accrued expenses . 167,786 (38,739) 165,650 354,436
Advances from customer ................. -- -- -- 28,300
------------- ----------- ------------- ---------------
Net cash used in
operating activities ................ (1,195,684) (705,275) (1,453,937) (3,597,512)
------------- ----------- ------------- ---------------
Investing activities:
Purchase of property and equipment ...... (15,062) (7,828) (6,775) (123,636)
Proceeds from mortgage note receivable .. 200,000 200,000 -- 200,000
Net proceeds from sale of property ...... -- -- -- 68,320
------------- ----------- ------------- ---------------
Net cash provided (used) by investing
activities .......................... 184,938 192,172 (6,775) 144,684
Financing activities:
Proceeds from notes payable and
line of credit ......................... -- -- 1,012,500 1,658,898
Repayment of notes payable ............... (43,637) (22,765) (172,210) (240,109)
Exchange expense on preferred stock
exchanged for common stock ............. -- 344,631 344,631
Proceeds from issuance of
preferred stock ........................ 1,950,000 1,950,000 0 2,330,000
------------- ----------- ------------- ---------------
Net cash provided by
financing activities ................ 1,906,363 1,927,235 1,184,921 4,093,420
------------- ----------- ------------- ---------------
Net increase (decrease) in cash ...... 895,617 1,414,132 (275,791) 640,592
Cash, beginning of period ................. 20,766 20,766 916,383 --
------------- ----------- ------------- ---------------
Cash, end of period ....................... $ 916,383 $1,434,898 $ 640,592 $ 640,592
============= =========== ============= ===============
</TABLE>
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.
Atinception, the Company assumed certain assets and liabilities, including a
$200,000 note payable.
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, the Company exchanged 628,180 shares of common stock for 490,000
shares of preferred 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 (note 7).
See accompanying notes to financial statements.
F-6
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO 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.
(B) INVENTORY
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory consists of the following.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ....................... $0 55,738 233,456
Work in progress and finished goods 0 138,100 178,975
--------------- --------------- ------------
$0 193,838 412,431
=============== =============== ============
</TABLE>
(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.
F-7
<PAGE>
(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)
Included in non-current other assets at December 31, 1994 was $98,593 of
inventory relating to products not to be marketed until other products in the
product line were fully developed.
(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.
(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
F-8
<PAGE>
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.
(K) NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), which becomes effective for financial statements for fiscal
years beginning after December 15, 1995. The statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets to be held and used, and
for long-lived assets and certain identifiable intangible assets to be disposed
of. The Company has adopted SFAS No. 121 and as of January 1, 1996 there was no
material impact to the financial position or results of operations of the
Company.
In October 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which becomes
effective for financial statements for fiscal years beginning after December 31,
1995. SFAS No. 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). The Company is currently accounting for
stock-based compensation under APB 25 and has opted to continue accounting for
stock-based compensation under this method.
(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
F-9
<PAGE>
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.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 USEFUL LIFE
--------------- --------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
=============== =============== ============
</TABLE>
(4) DUE TO OFFICERS/SHAREHOLDERS
(A) NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
12% UNSECURED NOTE PAYABLE ............. $100,000
Note payable to chief executive officer 150,000
-----------
$250,000
===========
</TABLE>
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 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
F-10
<PAGE>
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
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
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
=========== ========== ============
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- --------------- ----------
<S> <C>
1996 .......... $ 23,635
1997 .......... 51,916
1998 .......... 58,791
1999 .......... 43,458
----------
$177,800
==========
</TABLE>
(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
F-11
<PAGE>
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) REDEEMABLE PREFERRED STOCK
(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.
The Series A were convertible into common stock, one for one, at any time
during the first 18 months following the issuance of the stock at the option of
the stockholder. All then outstanding shares of Series A were to be redeemed no
later than June 30, 1996. Dividends were payable at the time of conversion or
redemption. The balance of the Series A plus accrued dividends was $2,573,863 at
December 31, 1995.
On April 27, 1996, the board of directors of the Company approved an offer to
exchange all of the Series A plus the aggregate amount of dividends accrued
through June 30, 1996 in the amount of $346,269 (unaudited) for 628,180 shares
of common stock. In June 1996, 100% of the Series A shareholders accepted the
Company's offer to exchange all of their preferred shares together with their
dividends. In connection with this exchange the Company recognized an expense in
the amount of $344,631 (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. The stock was convertible into common stock, one for
one, at any time during the first 18 months following the issuance of the stock
at the option of the stockholder. Dividends were payable at the time of
conversion or redemption. The balance of the First Series preferred stock plus
accrued dividends was $588,328 and $633,929 at December 31, 1993 and 1994
respectively.
On May 30, 1995, the board of directors of the Company approved the
redemption of all of the First Series outstanding 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.
(8) STOCKHOLDERS' DEFICIT
(A) 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.
F-12
<PAGE>
(B) 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.
(9) 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).
(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
F-13
<PAGE>
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.
(10) 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
<PAGE>
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
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ................. 3
Summary Financial Data ............. 6
Risk Factors ....................... 7
Use of Proceeds .................... 14
Dilution ........................... 15
Dividend Policy .................... 15
Capitalization ..................... 16
Selected Financial Data ............ 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .......... 18
Business ........................... 23
Management ......................... 35
Executive Compensation ............. 37
Certain Transactions ............... 41
Principal Shareholders ............. 42
Description of Capital Stock ...... 42
Shares Eligible for Future Sale ... 44
Underwriting ....................... 45
Legal Matters ...................... 47
Experts ............................ 47
Additional Information ............. 47
Index to Financial Statements ..... F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL October 22, 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. 1,000,000 SHARES
[MANSUR INDUSTRIES LOGO]
Common Stock
- -----------------------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------------------
[FIRST ALLIED SECURITIES INC. LOGO]
September 27, 1996
<PAGE>
PROSPECTUS
150,000 SHARES
[MANSUR INDUSTRIES LOGO]
COMMON STOCK
The 150,000 shares (the "Shares") of Common Stock, $.001 par value ("Common
Stock"), offered hereby are being offered directly by certain shareholders (the
"Selling Shareholders") of Mansur Industries Inc. (the "Company"). See
"Principal and Selling Shareholders." The Company will receive none of the
proceeds of the sale of the Shares. The Shares are issuable by 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 1,000,000 shares of the Common
Stock at an initial offering price of $7.50 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. The Common Stock has been approved for
quotation on the Nasdaq Small Cap Market (the "NASDAQ") under the symbol "MANS."
The Company has registered the Shares under the Securities Act for sale by
the Selling Shareholders. See "Selling Shareholders." The Selling
Shareholders have advised the Company that they may from time to time sell
all or a portion of the Shares offered hereby in one or more transactions in
the over-the-counter market on the NASDAQ SmallCap Markeet, on any exchange
on which the Common Stock may then be listed, in negotiated transactions or
otherwise, or a combination of such methods of sale, at market prices
prevailing at the time of sale or prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders and/or
purchasers of the Shares for whom they may act as agent (which compensation
may be in excess of customary commissions). The Selling Shareholders and any
participating broker-dealers may be deemed to be "underwriters" as defined in
the Securities Act of 1933, as amend (the "Securities Act"). Neither the
Company nor the Selling Shareholders can presently estimate the amount of
commissions or discounts, if any, that will be paid by the Selling
Shareholders on account of their sales of the Shares from time to time. The
shares are subject to an agreement between the holders thereof and 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. The Company has agreed to indemnify the Selling Shareholders
against certain liabilities, including certain liabilities under the
Securities Act. The Company has also agreed to bear certain expenses (other
than underwriting discounts and commissions and brokerage commissions and
fees) in connection with the registration and sale of the Shares. See
"Concurrent Offering," "Description of Securities," and "Plan of
Distribution."
- -----------------------------------------------------------------------------
SEE "RISK FACTORS" ON PAGES 7 TO 13 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.
September 27, 1996
<PAGE>
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
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 150,000 SHARES OF COMMON STOCK HAS NOT BEEN EXERCISED, AND
(III) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 100,000 SHARES OF COMMON
STOCK HAVE NOT BEEN EXERCISED.
THE COMPANY
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. The Company believes that substantially all of
the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil. The effectiveness of
the Company's products in accomplishing the distillation of contaminated solvent
to yield pure solvent and a by-product comparable to used oil has been
extensively tested by the laboratory of a division of Valvoline Oil Company and
the independent engineering concern of Law Engineering and Enironmental
Services, Inc.
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
3
<PAGE>
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 firm
purchase 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); Greenwich
Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 Units). The Company finances its
SystemOne(Trademark) Washers through a third party leasing program with Oakmount
Financial Services. The Company commenced commercial sales and delivery of units
in July 1996 at an approximate price per unit of $2,700, and expects to deliver
substantially all units ordered to date prior to December 31, 1996. As of the
date of this Prospectus, the Company had delivered and recognized the sale of 44
units.
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 commenced 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 is 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.
4
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered ...................150,000 shares
Common Stock Outstanding After Offering...4,501,309(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
</TABLE>
- --------------------------
(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."
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 1,000,000 shares of Common Stock, and up to 150,000 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
anticipates receiving net proceeds of approximately $6,306,750 from the sale of
those shares, and will receive approximately $987,000 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.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information set forth below should be read in
conjunction with financial statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .......... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses ......... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ............ -- (16,299) (16,360) (46,312)
Exchange (expense) on redeemable
preferred stock .................. -- -- -- --
Loss on disposition of property and
equipment ........................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ......................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable preferred
stock ............................ -- -- (8,328) (53,929)
Net (loss) to common shares ....... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common share(2) .... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ................... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------- --------------------------
1995 1995 1996
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 907,393 $ 418,079 $ 622,641
Research and development .......... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses ......... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ............ (17,878) (26,462) (13,094)
Exchange (expense) on redeemable
preferred stock .................. -- -- (344,631)
Loss on disposition of property and
equipment ........................ -- -- --
--------------- ------------- ---------------
Net (loss) ......................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable preferred
stock ............................ (222,067) (75,066) (147,000)
Net (loss) to common shares ....... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common share(2) .... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ................... 2,335,140 2,000,000 2,799,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------------------------------------------------------------- -------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- -------- ---------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL ..................... $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188 $ (216,966) $6,964,472
TOTAL ASSETS ........................ 338,225 265,932 493,751 756,942 1,452,942 1,562,712 7,671,650
CURRENT LIABILITIES.................. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
LONG-TERM LIABILITIES................ 0 0 0 700,011 154,165 129,014 129,014
TOTAL LIABILITIES ................... 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 7,168,722
</TABLE>
- ----------------
(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) The information provided has been 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 1,000,000 shares of Common Stock
offered hereby at an 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." The information provided has not
been adjusted to reflect that the Company issued $500,000 in principal
amount of Short Term Notes as of September 9, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
6
<PAGE>
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. 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. As a
result of such efforts, from inception until June 30, 1996, the Company
accumulated a deficit of $3,577,015. 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 for a limited period of time and, thus,
have achieved only limited market acceptance. As of the date of this Prospectus,
the Company has received firm purchase orders for 196 SystemOne/trademark/
Washers and anticipates delivering substantially all of the ordered units prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units. 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
7
<PAGE>
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 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
8
<PAGE>
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 (the "Product Financing Agreement") 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. Specifically, the Company has agreed to make the
following warranties upon each sale to Oakmont, which warranties provide Oakmont
with a basis for recourse against the Company for certain customer failures: (i)
to the best of the Company's knowledge, the customer will use the
SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the
best of the Company's knowledge, the lease and related documents have been duly
executed and delivered; (iii) the lease incorporates all of the representations
and warranties made by the Company to the lessee; (iv) all dealings by the
Company with the lessee have been in accordance with all applicable laws and
regulations; (v) the conduct of the Company in developing a lease will not
subject Oakmont to suit or administrative proceeding; (vi) the lessee has no
defense, offset or counterclaims as to the enforcement of the lease arising out
of the conduct or failure to perform of the Company; (vii) to the best of the
Company's knowledge, the Company does not know of any fact which indicates the
uncollectibility of the lease; (viii) to the best of the Company's knowledge,
the information provided by the lessee to the Company and Oakmont is accurate
and complete; (ix) except for funds which Oakmont has agreed the Company is
entitled to retain, the Company has not retained any funds given to it by a
lessee; and (x) title to the SystemOne Washer/trademark/ has vested in Oakmont
free and clear of any liens of persons claiming by, through or under the
Company. In the event the Company breaches one of the foregoing warranties and
fails to cure the breach, the Product Financing Agreement requires the Company
to purchase from Oakmont the leased SystemOne Washer and Oakmont's rights under
the lease agreement 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. 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", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Sales Financing
and Servicing Programs."
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 the
utilization of its products as intended does not constitute the generation,
treatment or disposal of hazardous waste and that its products yield 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 utilization
of the Company's products constitutes the generation,
9
<PAGE>
treatment or disposal of hazardous waste, 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 a number of third parties for its components and for the
manufacture of a large portion of its finished units. Although the Company has
entered into a SystemOne/trademark/ Washer supply agreement with a contract
manufacturer and believes that several alternative manufacturing sources are
readily available, failure by its current manufacturer 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 42
component and raw material suppliers and contract manufacturer, among other
things, to satisfy performance and quality specifications and dedicate
sufficient production capacity for components and raw materials 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 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
10
<PAGE>
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 45% 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."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO RELATED
PARTIES. Approximately $1,606,750 (25%) 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."
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 $5.91 (79%) per share of Common Stock
from the assumed initial public offering price. See "Dilution."
INEXPERIENCE OF REPRESENTATIVE. The Representative was registered as a broker
dealer on March 29, 1994. The Representative was relatively inactive for a
period of time and was reactivated under its present ownership structure on
December 15, 1994. The Representative does not have extensive experience as an
underwriter of public offerings of securities, having 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. In the event the Representative does not
participate as a market maker the liquidity in the Company's Common Stock may be
adversely affected. See "Underwriting."
11
<PAGE>
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."
NO PRIOR TRADING MARKET; POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET;
DISCLOSURE RELATING TO LOW PRICED STOCKS. Prior to this offering there has been
no public trading market for the Common Stock. The Common Stock has been
approved for quotation on Nasdaq SmallCap Market; however, there can be no
assurance that a trading market will develop or, if developed, that it will be
maintained. In addition, there can be no assurance that the Company will in the
future meet the maintenance criteria for continued quotation of the securities
on Nasdaq SmallCap Market. The continued quotation criteria for Nasdaq SmallCap
Market includes, among other things, $2,000,000 in total assets, $1,000,000 in
capital and surplus, a public float of 100,000 shares with a market value equal
to $200,000, two market makers and a minimum bid price of $1.00 per share of
common stock. If an issuer does not meet the $1.00 minimum bid price standard,
it may, however, remain on the Nasdaq SmallCap Market if the market value of its
public float is at least $1,000,000 and the issuer has at least $2,000,000 in
equity. If the Company were removed from the Nasdaq SmallCap Market, trading, if
any, in the Common Stock would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it
more difficult to dispose of, and to obtain accurate quotations as to the value
of such securities.
In addition, if the Common Stock is delisted from trading on the Nasdaq
SmallCap Market and the trading price of the Common Stock is less than $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, according to recent regulations
adopted by the Securities and Exchange Commission, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price of less than
$5.00 per share, subject to certain exceptions), including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell their securities in the secondary market.
There can be no assurance that the Common Stock will not be delisted or treated
as a penny stock.
EFFECT 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 possess any voting
rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. Although
12
<PAGE>
the Company has elected not to be subject to the provisions of the Florida
Control Share Act, the Company may, by amending its by-laws, elect to become
subject to the provisions of the Florida Control Share Act in the future. 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. Upon the consummation
of the Concurrent Offering, the Company anticipates that it will have 4,501,309
shares of Common Stock issued and outstanding. Of such shares, the 1,150,000
shares offered hereby or pursuant to the Concurrent Offering 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 remaining shares; (i) 2,656,729 shares are currently
eligible for sale under Rule 144; and (ii) 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."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus contains
forward-looking statements, 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 1,000,000 shares of Common Stock, and up to 150,000 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
anticipates receiving net proceeds of approximately $6,306,750 from the sale of
those shares, and will receive approximately $ 987,000 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.
13
<PAGE>
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 $6,306,750 based on an
initial public offering price of $7.50 per share (approximately
$7,293,938 if the Underwriters' over-allotment option is exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS
- --------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Development of manufacturing capacity(1) ...................... $1,000,000 16%
Development of marketing, sales and service centers and
service fleet(2) ............................................ 1,250,000 20
Development of corporate headquarters and research and
development facilities(3) ................................... 700,000 11
Purchase of raw materials and inventory(4) .................... 1,750,000 28
Working capital and general corporate purposes(5) ............ 1,606,750 25
---------------- ----------------
Total ....................................................... $6,306,750 100%
================ ================
</TABLE>
- --------
(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.
(5) Such figure includes the cost of retiring the Short Term Notes. As of
September 9, 1996, the Company issued $500,000 in principal amount of Short
Term Notes in a private financing. The Short Term Notes bear interest at a
rate of 4% through September 1996 and 12% thereafter. The Short Term Notes
are due and payable on September 4, 1997, or, if earlier, upon the
consummation of the Concurrent Offering. The Company intends to utilize the
proceeds of the Short Term Notes for the same purposes as the proceeds of
the Concurrent Offering are to be applied, with the exception that none of
the proceeds of the Short Term Notes will be used to develop a corporate
headquarters or a research and development facililty.
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 $987,000 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 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.
14
<PAGE>
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.
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 1,000,000
shares of Common Stock offered in the Concurrent Offering at an 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
$7,144,268, 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 $5.16 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 ......... 1.60
Pro forma net tangible book value after offering 1.59
--------
Total dilution to holders of Convertible Notes .. $5.16
========
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 $8,131,455,
or $1.75 per share. This represents an immediate increase in net tangible book
value of $1.76 per share to the existing shareholders and an immediate dilution
of $5.00 per share to the holders of Convertible Notes.
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 the conversion of the Convertible Notes)
by the existing shareholders and the new investors.
<TABLE>
<CAPTION>
PERCENT PERCENT AVERAGE
SHARES OF TOTAL AGGREGATE OF TOTAL PRICE
PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE
------------ ----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 3,501,309 75.3% $ 4,142,500 32.7% $1.18
New Investors ......... 1,150,000 24.7% 8,512,500 67.3% $7.40
------------ ----------- ---------------- ----------------
Total ................. 4,651,309 100.0% 12,655,000 100.0%
============ =========== ================ ================
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the new
investors will have paid $9,637,500 for 1,300,000 ommon Stock, representing
69.9% of the total consideration for 27.1% of the total number of shares
outstanding.
15
<PAGE>
CAPITALIZATION
Set forth below is the capitalization of the Company at June 30, 1996, and as
adjusted to reflect the Company's issuance of 1,000,000 shares of Common Stock
in this offering at an initial public offering price of $7.50 per share
and the automatic conversion of the Convertible Notes. See Note 4(B) of Notes to
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
ACTUAL AS ADJUSTED
------------- --------------
<S> <C> <C>
DEBT:
Short-term debt .................................................... $1,012,500 $ 0(1)
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 4,501,309 shares issued and outstanding,
respectively ..................................................... 3,351 4,501
Additional paid in capital ......................................... 3,560,948 10,741,236
Deficit accumulated during the development stage ................... 3,577,015 3,577,015
------------- --------------
Total stockholders' equity (deficit) .............................. (12,716) 7,168,722
------------- --------------
Total capitalization ............................................... $1,177,584 $7,346,522
============= ==============
</TABLE>
- -------------------
(1) The information provided has not been adjusted to reflect that the
Company issued $500,000 in principal amount of Short Term Notes as of
September 9, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
financial statements of the Company. The balance sheets 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 and each of the years in the four-year period ended December 31, 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."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development ..... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses .... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ........ -- (16,299) (16,360) (46,312)
Exchange (expense) on
redeemable preferred stock ... -- -- -- --
Loss on disposition of property
and equipment ................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ..................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable
preferred stock .............. -- -- (8,328) (53,929)
------------- ------------ ------------- -------------
Net (loss) to common shares ... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common
share(2) ..................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ............... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1995 1995 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 907,393 $ 418,079 $ 622,641
Research and development ..... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses .... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ........ (17,878) (26,462) (13,094)
Exchange (expense) on
redeemable preferred stock ... -- -- (344,631)
Loss on disposition of property
and equipment ................ -- -- --
--------------- ------------- ---------------
Net (loss) ..................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable
preferred stock .............. (222,067) (75,066) (147,000)
--------------- ------------- ---------------
Net (loss) to common shares ... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common
share(2) ..................... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ............... 2,335,140 2,000,000 2,799,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------------------------------------------------------ ----------------------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- ---- ---- ---- ---- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ............... $(414,148) $(407,230) $(94,055) $ (238,752) $ 613,188 $ (216,966) $6,964,472
Total assets .................. 338,225 265,932 493,751 756,942 1,452,942 1,562,712 7,671,650
Current liabilities............ 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
Long-term liabilities.......... 0 0 0 700,011 154,165 129,014 129,014
Total liabilities ............. 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
Stockholders' equity
(deficit):
Total stockholders' equity
(deficit) .................. (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 7,168,722
</TABLE>
- ----------------
(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) The information provided has been 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 1,000,000 shares of Common Stock
offered hereby at an 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." The information provided has not
been adjusted to reflect the issuance by the Company of $500,000 in
principal amount of Short Term Notes as of September 9, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
17
<PAGE>
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 49% 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 anticipates that its monthly general and administrative expenses will
continue to increase over the next twelve months if the Company's operations
expand in accordance with its proposed business plan.
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(Trademark) Washers to various facilities to test market receptivity.
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 complete development and testing of various
of its products and to develop new products and concepts.
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
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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.
In the six months ended June 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.
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 (238%) 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
(121%) 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. The Company expects that it will incur significant additional
losses at least through December 31, 1996.
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.
Aside from meeting SystemOne/trademark/ Washer purchase and lease orders, the
Company's material commitments principally relate to its obligations to pay the
contract manufacturers of its SystemOne(Trademark) Washers (currently
approximately $745-$905 per SystemOne/trademark/ Washer), make lease payments
pursuant to certain real property and equipment leases (currently approximately
$7,940 per month), makes installment payments pursuant to an equipment purchase
finance agreement (currently approximately $5,690 per month) and satisfy its
financial obligations under seven employment agreements (currently approximately
$38,835 per month). Upon consummation of this offering and the retirement of the
Short Term Notes from the proceeds thereof, 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, 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/trademark/ Washers the Company could, at First Recovery's
sole option, be required to acquire the sublessor's interest of First Recovery
in certain leases entered into by First Recovery under a the pilot marketing
program. In such an event, the Company would be required to purchase First
Recovery's sublessor'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
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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
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
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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.
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 are due and payable on September 4, 1997,
or, if earlier, upon the consummation and out of the proceeds of this offering.
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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. The Company believes that substantially all of
the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil. The effectiveness
of the Company's products in accomplishing the distillation of contaminated
solvent to yield pure solvent and a by-product comparable to used oil has been
extensively tested by the laboratory of a division of Valvoline Oil Company and
the independent engineering concern of Law Enginerring and Environmental
Services, Inc.
STRATEGY
The Company's strategy is to focus initially on the manufacture, marketing
and sale of its SystemOne(Trademark) 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(Trademark) 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
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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(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
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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(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.
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
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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. 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(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.
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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.
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
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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 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
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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 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.
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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. As of the date of this Prospectus, the Company was
procuring raw materials and components for its SystemOne/trademark/ Washers from
42 sources.
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 firm purchase
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);
Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 units). The Company commenced commercial sales
and delivery of units in July 1996 at an approximate price per unit of $2,700,
and anticipates delivering substantially all of the ordered units to date prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units.
In a parallel marketing strategy, to test the viability of the strategic
marketing alliance concept for its products, in August 1996 the Company
commences a pilot program with First Recovery and Valvoline Oil Company, two
affiliates of Ashland Oil, pursuant to which First Recovery serves 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
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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 discharge their obligations to Oakmont unless the Company
has breached and failed to cure certain warranties. Specifically, the Company
has agreed to make the following warranties upon each sale to Oakmont, which
warranties provide Oakmont with a basis for recourse against the Company for
certain customer failures: (i) to the best of the Company's knowledge, the
customer will use the SystemOne/trademark/ Washer principally for commercial
purposes; (ii) to the best of the Company's knowledge, the lease and related
documents have been duly executed and delivered; (iii) the lease incorporates
all of the representations and warranties made by the Company to the lessee;
(iv) all dealings by the Company with the lessee have been in accordance with
all applicable laws and regulations; (v) the conduct of the Company in
developing a lease will not subject Oakmont to suit or
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administrative proceeding; (vi) the lessee has no defense, offset or
counterclaims as to the enforcement of the lease arising out of the conduct or
failure to perform of the Company; (vii) the Company does not know of any fact
which indicates the uncollectibility of the lease; (viii) to the best of the
Company's knowledge, the information provided by the lessee to the Company and
Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed
the Company is entitled to retain, the Company has not retained any funds given
to it by a lessee; and (x) title to the SystemOne/trademark/ Washer has vested
in Oakmont free and clear of any liens of persons claiming by, through or under
the Company. In the event the Company breaches one of the foregoing warranties
and fails to cure the breach, the Product Financing Agreement requires the
Company to purchase from Oakmont the leased SystemOne(Trademark) Washer and
Oakmont's rights under the lease 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
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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.
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 and an adjacent
5,500 square foot building located in Miami, Florida. The lease for the
10,000 square foot building (the "Primary Lease") commenced on January 1, 1995
and expires December 31, 1996. The Primary Lease provides for two renewal terms
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of two years. The Company's annual lease payments under the Primary Lease are
approximately $61,000, which amount does not include the Company's obligation to
pay all utility and service charges. The lease for the 5,500 square foot
building (the "Secondary Lease") commenced on September 1, 1996 and expires
August 30, 1998. The Company's annual lease payments under the Secondary Lease
are approximately $32,208, which amount does not include the Company's
obligation to pay all utility and service charges. The Company has the right to
cancel the Secondary Lease upon four months written notice. In addition, the
Company maintains a sales, distribution and light manufacturing center in a
1,692 square foot facility located in Pinellas Park, Florida (the "Sales
Lease"). The Sales Lease commenced on September 15, 1996 and expires on
October 1, 1998. Annual rental obligations under the Sales Lease are
approximately $6,491.25, which amount does not include the Company's obligation
to pay all utility and service charges. 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 on 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 16 employees, of whom
five 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------------------------------------------------------------
<S> <C> <C>
Pierre G. Mansur ........ 44 Chairman of the Board and President
Paul I. Mansur .......... 45 Director and Chief Executive Officer
Richard P. Smith, C.P.A. 39 Vice President of Finance and Chief Financial
Officer
Charles W. Profilet .... 59 Vice President-Business Development
Elias F. Mansur ......... 53 Director
Dr. Jan Hedberg ......... 49 Director
Joseph E. Jack .......... 68 Director
</TABLE>
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 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.
35
<PAGE>
RICHARD P. SMITH has been the Chief Financial Officer of the Company since
September 1, 1996. From April 1987 to August 1996, Mr. Smith held various
positions, including Vice President, Chief Financial Officer, Treasurer,
Secretary, Director of Business Planning, and Controller of European Operations
of Telematics International, Inc., a manufacturer and supplier of intelligent
networking technologies and products. From August 1983 to April 1987, Mr. Smith
served as Manager of Internal Controls and Cost Analysis for Motorola, Inc., a
worldwide manufacturer of a diverse line of electronic equipment and components,
including communications systems, semiconductors, electronic controls and
computer systems. Motorola, Inc.'s securities are listed on the New York Stock
Exchange. From January 1980 to March 1981, Mr. Smith worked as an accountant for
Arthur Young and Co. C.P.A. Mr. Smith is a graduate of Illinois Wesleyan
University and holds a Masters of Business Administration degree from the
University of Illinois and a Masters of Finance degree from Cambridge
University.
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.
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<PAGE>
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.
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
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------- --------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION
- --------------------------- ------- ---------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Mr. Pierre G. Mansur 1995 $66,000 $267,460(1) $6,605(2) $0
------- ---------- -------------- ---------------- ---------------
Chairman and President 1994 $66,000 $0 $550(2) $0
------- ---------- -------------- ---------------- ---------------
1993 $22,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
Mr. Paul I. Mansur 1995 $48,000 $0 $2,550(2) $0
------- ---------- -------------- ---------------- ---------------
Chief Executive Officer 1994 $48,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
1993 $5,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
</TABLE>
- ----------
(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.
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
37
<PAGE>
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 July 1996, the Company entered into a one year employment agreement with
Mr. Richard Smith, which provides for an annual base salary of $110,000, a car
allowance of $400 a month, and a mobile telephone allowance of $150 a month. The
employment agreement provides that Mr. Smith is entitled to receive a minimum of
10,000 common stock purchase options comprised of: 5,000 options to be issued
upon the consummation of the Concurrent Offering exercisable at the initial
public offering price, and 5,000 options to be issued on December 31, 1996
exercisable at the then current market price of the common stock. Pursuant to
the employment agreement, if Mr. Smith 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. Smith is terminated without cause, he is
entitled to receive his current salary for four months or until he secures new
employment, whichever occurs first. In addition to the employment agreement, the
Company and Mr. Smith entered into a Non-Circumvention and Non-Disclosure
Agreement.
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
38
<PAGE>
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.
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 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.
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.
39
<PAGE>
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 Executive Incentive Compensation 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.
40
<PAGE>
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 have, from time to
time, rendered consulting services to the Company in connection with
financing, marketing and technical matters. In April 1996 they were each
granted 10,000 shares of the Company's Common Stock, valued at $3.50 per share,
in exchange for such 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.
Under the terms of the line of credit, interest accrued at a rate of 6% in 1994,
1995 and the five month period ended 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. The
note evidencing the Debt had a maturity date of December 31, 1995, which
maturity date was extended to December 31, 1996. 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.
FUTURE TRANSACTIONS
Each of the transactions between the Company and each officer and shareholder
of the Company was made on terms no less favorable to the Company than those
that were available from unaffiliated
41
<PAGE>
third parties. All future transactions, including loans, between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated third parties.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock immediately prior to this offering and the
concurrent 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, (iv) each Selling Shareholder and (v) all Directors and
Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THIS OFFERING NUMBER OF THIS OFFERING
----------------------- SHARES ---------------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---- -------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Pierre G. Mansur/dagger/ .. 2,000,000 59.7% 0 2,000,000 44.4%
Mr. Paul I. Mansur/dagger/ .... 0 * 0 0 *
Dr. Jan Hedberg/dagger/ ........ 35,000(1) 1.0% 15,000 20,000(1) *
Mr. Elias F. Mansur/dagger/ ... 41,025(2) 1.2% 15,000 26,025 *
Mr. Joseph E. Jack/dagger/ .... 37,820(2) 1.1% 15,000 22,820 *
First Malro, Inc. .............. 157,690(3) 3% 100,000 57,690 1.3%
Environmental Technologies BVI
Limited ...................... 25,000(2) * 15,000 10,000 *
Said Mouawad ................... 17,820(4) * 5,000 12,820 *
Mr. Charles W. Profilet/dagger/ 0 * 0 0 *
Mr. Richard P. Smith/dagger/ .. 10,000(5) * 0 10,000(5) *
All Directors and
Executive Officers
as a Group (6 persons) ....... 2,123,845(6) 63.4% 45,000 2,078,845(6) 46.2%
</TABLE>
- ---------------
* Less than 1%
/dagger/ The address of the beneficial owner is 8425 S.W. 129th Terr.,
Miami, Florida 33156.
(1) Includes 25,000 shares of Common Stock beneficially held by Environmental
Technologies BVI Limited, of which Dr. Hedberg owns 50 percent and serves
as the Managing Director. See Note 2.
(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 upon the consummation of the Concurrent Offering.
(3) Includes 100,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of $675,000, which conversion shall
occur upon the consummation of the Concurrent Offering.
(4) Includes 5,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of 33,750, which conversion shall
occur upon the consummation of the Concurrent Offering.
(5) Includes 10,000 shares of Common Stock issuable upon the exercise of stock
options.
(6) See Notes (1), (2) and (5).
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."
42
<PAGE>
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."
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 Florida Control Share Act 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. Although the Company has elected not to be subject
to the provisions of the Florida Control Share Act, the Company may, by amending
its by-laws, elect to become subject to the provisions of the Florida Control
Share Act in the future. The Affiliated Transactions Act 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.
Mr. Pierre Mansur's initial acquisition of Common Stock was not subject to
the provisions of the Florida Control Share Act or the Florida Affiliated
Transactions Act. Future acquisitions of the Common Stock by Mr. Mansur will not
trigger the provisions of the Florida Control Share Act unless the Company has
elected to become subject to the provisions of the Florida Control Share Act.
Future acquisitions of the Common Stock by Mr. Mansur will also not trigger the
provisions of the Florida Affiliated Transactions Act provided any such
acquisition has been approved by a majority of the "disinterested directors" on
the Company's board of directors. Mr. Mansur is the Company's Chairman of the
Board and President.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the Florida Business Corporation Act
("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.
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<PAGE>
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
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
Upon the consummation of this offering, the Company anticipates that it will
have 4,501,309 shares of Common Stock outstanding. The 1,150,000 shares of
Common Stock offered hereby or pursuant to the Concurrent Offering 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
44
<PAGE>
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; (i) 2,656,729 shares will become
eligible for sale under Rule 144 90 days from the date of this Prospectus; and
(ii) 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.
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 Selling Shareholders have advised the Company that they may from time to
time sell all or a portion of the Shares offered hereby in one or more
transactions in the over-the-counter market, on the NASDAQ SmallCap Market, on
any exchange on which the Common Stock may then be listed, in negotiated
transactions or otherwise, or a combination of such methods of sale, at market,
prices prevailing at the time of sale or prices related to such prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or purchasers of
the Shares for whom they may act as agent (which compensation may be in excess
of customary commissions). In connection with such sales, the Selling
Shareholders and any broker-dealers or agents participating in such sales may be
deemed to be underwriters as that term is defined under the Securities Act.
Neither the Company nor the Selling Shareholders can presently estimate the
amount of commissions or discounts, if any, that will be paid by the Selling
Shareholders on account of their sales of the Shares from time to time. The
Shares are subject to an agreement between the holders thereof and the
Representative restricting the sale thereof within the 13 months from the date
of this Prospectus without the prior written consent of the Representative.
Under the securities laws of certain states, the Shares may be sold in such
states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
Shares may not be sold therein unless the Shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and satisfied.
45
<PAGE>
The Company will pay certain expenses in connection with this offering,
estimated to be approximately $69,554 but will not pay for any underwriting
commissions and discounts, if any, or counsel fees or expenses of the Selling
Shareholders. The Company will pay the Representative a commission of $127,250
and a non-accountable expense allowance of $30,375 in connection with the
services provided with respect to the Convertible Notes. The Company has agreed
to indemnify the Selling Shareholders, their directors, officers, agents and
representatives, and any underwriters, against certain liabilities, including
certain liabilities under the Securities Act. The Selling Shareholders have also
agreed to indemnify the Company, its directors, officers, agents and
representatives against certain liabilities, including certain liabilities under
the Securities Act.
The Selling Shareholders and other persons participating in the distribution
of the Shares offered hereby are subject to the applicable requirements of Rule
10b-6 promulgated under the Exchange Act in connection with sales of the Shares.
46
<PAGE>
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:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------- ------------
<S> <C>
First Allied Securities Inc. ....................... 450,000
Josephthal Lyon & Ross Incorporated ................. 68,000
Southeast Research Partners, Inc. ................... 68,000
Baird Patrick & Co., Inc. ........................... 46,000
Brean Murray & Co., Inc. ............................ 46,000
First Equity Corporation ............................ 46,000
C.L. King & Associates, Inc. ........................ 46,000
Laidlaw Equities, Inc. .............................. 46,000
LT Lawrence & Co., Inc. ............................. 46,000
Sands Brothers & Co., Ltd. .......................... 46,000
Smith Moore & Co. ................................... 46,000
R.J. Steichen & Company ............................. 46,000
------------
Total .......................... 1,000,000
============
</TABLE>
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 $7.50 per share
and to certain dealers at such prices less concessions of not in excess of $.40
per share of Common Stock. Such dealers may reallow a concession not in excess
of $.10 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 150,000 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.
47
<PAGE>
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.
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 100,000 shares of Common Stock. The Representative's
Warrants are initially exercisable for shares of Common Stock at a price of
$9.00 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.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make.
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 was registered as a broker dealer on March 29, 1994. The
Representative was relatively inactive for a period of time and was reactivated
under its present ownership structure on December 15, 1994. The Representative
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.
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.
48
<PAGE>
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.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
F-1
<PAGE>
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 and each of the years in
the four-year period ended 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 and each
of the years in the four-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
January 19, 1996
F-2
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .................................................. $ 20,766 $ 916,383 $ 640,592
Inventory ............................................. 0 193,838 412,431
Other assets .......................................... 85,810 18,290 176,425
--------------- --------------- --------------
Total current assets ................................. 106,576 1,128,511 1,229,448
--------------- --------------- --------------
Mortgage note receivable ............................... 200,000 0 0
--------------- --------------- --------------
Property and equipment, net ............................ 351,773 324,431 308,810
Other assets ........................................... 98,593 0 0
Intangible assets, net ................................. 0 0 24,454
--------------- --------------- --------------
650,366 324,431 333,264
--------------- --------------- --------------
Total Assets ......................................... $ 756,942 1,452,942 1,562,712
=============== =============== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ................. $ 6,007 219,477 382,878
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 ............................ 345,328 515,323 1,446,414
--------------- --------------- --------------
Long-term debt, excluding current installments ........ 700,011 154,165 129,014
--------------- --------------- --------------
Total liabilities .................................... 1,045,339 669,488 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) 438,132 3,560,948
Deficit accumulated during the development stage ..... (912,069) (2,231,214) (3,577,015)
--------------- --------------- --------------
Total stockholders' (deficit) ........................ (922,326) (1,790,409) (12,716)
--------------- --------------- --------------
Total liabilities and stockholders' (deficit) ....... $ 756,942 $ 1,452,942 $ 1,562,712
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------
1991 1992 1993 1994
------------- --------- ------- --------
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .. 128,439 31,924 69,256 178,146
--------------- ------------ ------------- -------------
Total operating expenses . 136,941 40,895 151,142 446,560
--------------- ------------ ------------- -------------
Loss from operations ..... (136,941) (40,895) (151,142) (446,560)
--------------- ------------ ------------- -------------
Interest expense ............ -- (16,299) (16,360) (46,312)
Exchange expense
on redeemable
preferred stock ........... -- -- -- --
Interest Income ............. -- -- -- --
Loss on disposal of property
and equipment ............. -- (39,560) (18,000) --
--------------- ------------ ------------- -------------
Net loss .................. (136,941) (96,754) (185,502) (492,872)
--------------- ------------ ------------- -------------
Dividends on redeemable
preferred stock ......... -- -- (8,328) (53,929)
--------------- ------------ ------------- -------------
Net loss to common
shares .................. $ (136,941) $ (96,754) $ (193,830) $ (546,801)
=============== ============ ============= =============
Net loss per common
share ................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
=============== ============ ============= =============
Weighted average shares
outstanding ............. 2,000,000 2,000,000 2,000,000 2,000,000
=============== ============ ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
---------------- JUNE 30,
1995 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative $907,393 $418,079 $622,641 $1,897,807
research and development 393,874 162,732 365,435 1,167,074
--------------- ------------- --------------- ---------------
Total operating expenses . 1,301,267 580,811 988,076 3,064,881
--------------- ------------- --------------- ---------------
Loss from operations ..... (1,301,267) (580,811) (988,076) (3,064,881)
--------------- ------------- --------------- ---------------
Interest expense ............ (63,528) (38,259) (24,179) (166,678)
Exchange 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 ............. -- -- -- (57,560)
--------------- ------------- --------------- ---------------
Net loss .................. (1,319,145) (607,273) (1,345,801) (3,577,015)
--------------- ------------- --------------- ---------------
Dividends on redeemable
preferred stock ......... (222,067) (75,066) (147,000) (431,324)
--------------- ------------- --------------- ---------------
Net loss to common
shares .................. $(1,541,212) $ (682,339) $(1,492,801) $(4,008,339)
=============== ============= =============== ===============
Net loss per common
share ................... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding ............. 2,335,140 2,000,000 2,799,071
=============== ============= ===============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
FROM NOVEMBER 13, 1990 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFFERED STOCK COMMON STOCK
---------------------------- ------------------------
SHARES AMOUNT SHARES PAR
------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
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 patents pending .......... -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1991 ............ -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1992 ............ -- -- 2,000,000 2,000
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 ..
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1993 ............ 580,000 580,000 2,000,000 2,000
Accrued dividends on preferred stock .. 53,929
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1994 ............ 580,000 633,929 2,000,000 2,000
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
Conversion of preferred stock and
accrued dividends to common stock .... (580,000) (656,729) 656,729 657
Accrued dividends on preferred stock .. 199,267
Issuance of common stock in exchange
for services rendered ................ -- -- 16,400 16
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1995 ............ 490,000 2,573,863 2,673,129 2,673
Issuance of common stock in exchange
for services rendered (unaudited) .... -- -- 30,000 30
Conversion of note payable into common
stock (unaudited) .................... -- -- 20,000 20
Accrued dividends on preferred stock
(unaudited) .......................... 147,000
Exchange of preferred stock and accrued
dividends to common stock (unaudited) (490,000) (2,720,863) 628,180 628
Net loss (unaudited) ................... -- -- -- --
------------ -------------- ------------ ----------
Balance at June 30, 1996 (unaudited) ... 0 $ 0 3,351,309 $ 3,351
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE (DEFICIT)
------------- --------------- ----------------
<S> <C> <C> <C>
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
patents pending .......... 50,000 -- 52,000
Net loss ............................... -- (136,941) (136,941)
------------- --------------- ----------------
Balance at December 31, 1991 ............ 50,000 (136,941) (84,941)
Net loss ............................... -- (96,754) (96,754)
------------- --------------- ----------------
Balance at December 31, 1992 ............ 50,000 (233,695) (181,695)
Issuance of preferred stock in exchange
for cash ............................. -- -- --
Issuance of preferred stock in
satisfaction of notes payable ........ -- -- --
Accrued dividends on preferred stock .. (8,328) (8,328)
Net loss ............................... -- (185,502) (185,502)
------------- --------------- ----------------
Balance at December 31, 1993 ............ 41,672 (419,197) (375,525)
Accrued dividends on preferred stock .. (53,929) (53,929)
Net loss ............................... -- (492,872) (492,872)
Balance at December 31, 1994 ............ (12,257) (912,069) (922,326)
Issuance of preferred stock in exchange
for cash and note payable, net of
costs ................................ -- -- --
Accrued dividends on preferred stock .. (22,800) (22,800)
Conversion of preferred stock and
accrued dividends to common stock .... 656,072 -- 656,729
Accrued dividends on preferred stock .. (199,267) (199,267)
Issuance of common stock in exchange
for services rendered ................ 16,384 -- 16,400
Net loss ............................... -- (1,319,145) (1,319,145)
------------- --------------- ----------------
Balance at December 31, 1995 ............ 438,132 (2,231,214) (1,790,409)
Issuance of common stock in exchange
for services rendered (unaudited) .... 104,970 -- 105,000
Conversion of note payable into common
stock (unaudited) .................... 99,980 -- 100,000
Accrued dividends on preferred stock
(unaudited) .......................... (147,000) (147,000)
Exchange of preferred stock and accrued
dividends to common stock (unaudited) 3,064,866 -- 3,065,494
Net loss (unaudited) ................... -- (1,345,801) (1,345,801)
------------- --------------- ----------------
Balance at June 30, 1996 (unaudited) ... $3,560,948 $(3,577,015) $ (12,716)
============= =============== ================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------
1991 1992 1993 1994
-------------- ----- ----- -----
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss ................................. $(136,941) $(96,754) $(185,502) $(492,872)
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
Common Stock issued for services ....... -- -- -- --
Changes in operating assets
and liabilities: ......................
Inventory .............................. (5,095) (23,205) (29,838) (68,755)
Other assets ........................... (1,318) (1,174) (7,067) (76,251)
Intangible assets ...................... -- -- -- --
Accounts payable and accrued expenses . 1,790 (1,666) 8,461 12,415
Advances from customer ................. 11,500 16,800 -- --
--------------- ---------- ----------- -----------
Net cash used in
operating activities ................ (60,099) (66,439) (213,946) (607,407)
--------------- ---------- ----------- -----------
Investing activities:
Purchase of property and equipment ...... (6,207) (4,208) (43,157) (48,227)
Proceeds from mortgage note receivable .. -- -- -- --
Net proceeds from sale of property ...... -- 68,320 -- --
--------------- ---------- ----------- -----------
Net cash provided (used) by investing
activities .......................... (6,207) 64,112 (43,157) (48,227)
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)
Exchange expense on preferred stock
exchanged for common stock ............. -- -- -- --
Proceeds from issuance of
preferred stock ........................ -- -- 380,000 --
--------------- ---------- ----------- -----------
Net cash provided by
financing activities ................ 68,911 37,627 404,860 490,738
--------------- ---------- ----------- -----------
Net increase (decrease) in cash ...... 2,605 35,300 147,757 (164,896)
Cash, beginning of period ................. -- 2,605 37,905 185,662
--------------- ---------- ----------- -----------
Cash, end of period ....................... $ 2,605 $ 37,905 $ 185,662 $ 20,766
=============== ========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
---------------------- JUNE 30,
1995 1995 1996 1996
------ ---- ---- ------------
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss $(1,319,145) $(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 ............................ 42,404 20,934 22,396 82,856
Common Stock issued for services ....... 16,400 6,400 105,000 121,400
Changes in operating assets
and liabilities: ......................
Inventory .......................... (95,245) (85,366) (218,593) (440,731)
Other assets ........................... (7,884) (1,231) (158,135) (251,829)
Intangible assets ...................... -- -- (24,454) (24,454)
Accounts payable and accrued expenses . 167,786 (38,739) 165,650 354,436
Advances from customer ................. -- -- -- 28,300
------------- ----------- ------------- ---------------
Net cash used in
operating activities ................ (1,195,684) (705,275) (1,453,937) (3,597,512)
------------- ----------- ------------- ---------------
Investing activities:
Purchase of property and equipment ...... (15,062) (7,828) (6,775) (123,636)
Proceeds from mortgage note receivable .. 200,000 200,000 -- 200,000
Net proceeds from sale of property ...... -- -- -- 68,320
------------- ----------- ------------- ---------------
Net cash provided (used) by investing
activities .......................... 184,938 192,172 (6,775) 144,684
Financing activities:
Proceeds from notes payable and
line of credit ......................... -- -- 1,012,500 1,658,898
Repayment of notes payable ............... (43,637) (22,765) (172,210) (240,109)
Exchange expense on preferred stock
exchanged for common stock ............. -- 344,631 344,631
Proceeds from issuance of
preferred stock ........................ 1,950,000 1,950,000 0 2,330,000
------------- ----------- ------------- ---------------
Net cash provided by
financing activities ................ 1,906,363 1,927,235 1,184,921 4,093,420
------------- ----------- ------------- ---------------
Net increase (decrease) in cash ...... 895,617 1,414,132 (275,791) 640,592
Cash, beginning of period ................. 20,766 20,766 916,383 --
------------- ----------- ------------- ---------------
Cash, end of period ....................... $ 916,383 $1,434,898 $ 640,592 $ 640,592
============= =========== ============= ===============
</TABLE>
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.
At inception, the Company assumed certain assets and liabilities, including a
$200,000 note payable.
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, the Company exchanged 628,180 shares of common stock for 490,000
shares of preferred 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 (note 7).
See accompanying notes to financial statements.
F6
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO 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.
(B) INVENTORY
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory consists of the following.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ....................... $0 55,738 233,456
Work in progress and finished goods 0 138,100 178,975
--------------- --------------- ------------
$0 193,838 412,431
=============== =============== ============
</TABLE>
(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.
F-7
<PAGE>
(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)
Included in non-current other assets at December 31, 1994 was $98,593 of
inventory relating to products not to be marketed until other products in the
product line were fully developed.
(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.
(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
F-8
<PAGE>
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.
(K) NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), which becomes effective for financial statements for fiscal
years beginning after December 15, 1995. The statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets to be held and used, and
for long-lived assets and certain identifiable intangible assets to be disposed
of. The Company has adopted SFAS No. 121 and as of January 1, 1996 there was no
material impact to the financial position or results of operations of the
Company.
In October 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which becomes
effective for financial statements for fiscal years beginning after December 31,
1995. SFAS No. 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). The Company is currently accounting for
stock-based compensation under APB 25 and has opted to continue accounting for
stock-based compensation under this method.
(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
F-9
<PAGE>
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.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 USEFUL LIFE
--------------- --------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
=============== =============== ============
</TABLE>
(4) DUE TO OFFICERS/SHAREHOLDERS
(A) NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
12% UNSECURED NOTE PAYABLE ............. $100,000
<S> <C>
Note payable to chief executive officer 150,000
-----------
$250,000
===========
</TABLE>
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 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
F-10
<PAGE>
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
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
=========== ========== ============
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- --------------- ----------
<S> <C>
1996 .......... $ 23,635
1997 .......... 51,916
1998 .......... 58,791
1999 .......... 43,458
----------
$177,800
==========
</TABLE>
(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
F-11
<PAGE>
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) REDEEMABLE PREFERRED STOCK
(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.
The Series A were convertible into common stock, one for one, at any time
during the first 18 months following the issuance of the stock at the option of
the stockholder. All then outstanding shares of Series A were to be redeemed no
later than June 30, 1996. Dividends were payable at the time of conversion or
redemption. The balance of the Series A plus accrued dividends was $2,573,863 at
December 31, 1995.
On April 27, 1996, the board of directors of the Company approved an offer to
exchange all of the Series A plus the aggregate amount of dividends accrued
through June 30, 1996 in the amount of $346,269 (unaudited) for 628,180 shares
of common stock. In June 1996, 100% of the Series A shareholders accepted the
Company's offer to exchange all of their preferred shares together with their
dividends. In connection with this exchange the Company recognized an expense in
the amount of $344,631 (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. The stock was convertible into common stock, one for
one, at any time during the first 18 months following the issuance of the stock
at the option of the stockholder. Dividends were payable at the time of
conversion or redemption. The balance of the First Series preferred stock plus
accrued dividends was $588,328 and $633,929 at December 31, 1993 and 1994
respectively.
On May 30, 1995, the board of directors of the Company approved the
redemption of all of the First Series preferred stock outstanding 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.
(8) STOCKHOLDERS' DEFICIT
(A) 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.
F-12
<PAGE>
(B) 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.
(9) 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).
(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
F-13
<PAGE>
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.
(10) 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
<PAGE>
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
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Concurrent Offering ........................ 13
Use of Proceeds of Concurrent Offering .... 14
Dilution ................................... 15
Capitalization ............................. 16
Selected Financial Data .................... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .................. 18
Business ................................... 23
Management ................................. 35
Executive Compensation ..................... 37
Certain Transactions ....................... 41
Principal and Selling Shareholders ........ 42
Description of Capital Stock ............... 42
Shares Eligible for Future Sale ............ 44
Plan of Distribution ....................... 45
Underwriting of the Concurrent Offering ... 47
Legal Matters .............................. 48
Experts .................................... 48
Additional Information ..................... 49
Index to Financial Statements .............. F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL OCTOBER 22, 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 LOGO]
COMMON STOCK
- -----------------------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------------------
September 27, 1996
