UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1998
Commission File No. 000-21325
MANSUR INDUSTRIES INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
8305 N.W. 27TH TERRACE, SUITE 107
MIAMI, FLORIDA 33122
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(Address of Principal Executive Offices)
(305) 593-8015
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(Issuer's Telephone Number, Including Area Code)
FLORIDA 65-0226813
- ------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock par value $.001 outstanding was 4,601,309
as of the close of business on April 30, 1998.
<PAGE>
MANSUR INDUSTRIES INC
INDEX TO FORM 10-QSB
QUARTER ENDED MARCH 31, 1998
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets-
As of March 31, 1998 (unaudited) and December 31, 1997
Condensed Statements of Operations-
For the three months ended March 31, 1998 and 1997 (unaudited)
Condensed Statements of Cash Flows-
For the three months ended March 31, 1998 and 1997 (unaudited)
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
<CAPTION>
MANSUR INDUSTRIES INC.
CONDENSED BALANCE SHEETS
March 31, 1998 (unaudited) and December 31, 1997
(In thousands, except per share data)
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,363 $ 2,243
Accounts receivable, net 1,622 1,006
Inventories 1,856 1,824
Other assets 134 214
-------- --------
Total current assets 19,975 5,287
Property and equipment, net 1,514 1,355
Intangible assets, net 76 72
Other Assets 1,294 74
======== ========
Total Assets $ 22,859 $ 6,788
======== ========
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,006 $ 759
Deferred revenue 539 170
Interest payable 133 2
Current installments of long-term debt 158 153
-------- --------
Total current liabilities 1,836 1,084
Long-term debt, excluding current installments 17,462 502
-------- --------
Total liabilities 19,298 1,586
-------- --------
Stockholders' equity
Common stock, $0.001 par value. Authorized 25,000,000
shares, issued and outstanding 4,601,309 shares
for 1998 and 1997 5 5
Additional paid-in capital 11,116 11,116
Accumulated deficit (7,560) (5,919)
-------- --------
Total stockholders' equity 3,561 5,202
-------- --------
Total liabilities and stockholders' equity $ 22,859 $ 6,788
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
MANSUR INDUSTRIES INC.
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1998 and 1997
(Unaudited)
(In thousands, except per share data)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
Sales $ 1,282 $ 1,153
Cost of sales 1,049 748
----------- -----------
Gross margin 233 405
Operating expenses:
Research and product development 40 153
Sales, general and administrative 1,740 555
----------- -----------
1,780 708
----------- -----------
Loss from operations (1,547) (303)
Interest income (expense), net (94) 59
----------- -----------
Net loss $ (1,641) $ (244)
=========== ===========
Basic and diluted net loss per
common share $ (0.36) $ (0.05)
=========== ===========
Weighted-average of common shares
Outstanding 4,601,309 4,601,309
=========== ===========
See accompanying notes to condensed financial statements.
<PAGE>
MANSUR INDUSTRIES INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS)
MARCH 31, MARCH 31,
1998 1997
--------- ---------
Cash used in operating activities:
Net loss $ (1,641) $ (244)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 36 17
Changes in operating assets and liabilities:
Inventory (32) (321)
Accounts receivable (616) (93)
Other assets (1,140) (14)
Intangible assets (4) (5)
Accounts payable and accrued expenses 747 216
-------- --------
Net cash used in operating activities (2,650) (444)
Investing activities:
Purchase of property and equipment (195) (59)
-------- --------
Net cash provided by (used in) investing activities (195) (59)
Financing activities:
Proceeds from notes payable 17,000 0
Repayment of notes payable (35) (14)
-------- --------
Net cash provided by financing activities 16,965 (14)
-------- --------
Net increase (decrease) in cash 14,120 (517)
Cash and cash equivalents, beginning of period 2,243 5,321
-------- --------
Cash and cash equivalents, end of period $ 16,363 $ 4,804
======== ========
See accompanying notes to condensed financial statements.
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED)
AND DECEMBER 31, 1997
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING
PRONOUNCEMENTS
Mansur Industries Inc. (the "Company") is primarily engaged in marketing and
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.
(1) BASIS OF PRESENTATION
The accompanying unaudited interim condensed financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim condensed statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-KSB
filed with the Securities and Exchange Commission for the year ended December
31, 1997.
Interim condensed statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the full year 1998; in the
Company's opinion, all adjustments necessary for a fair presentation of these
interim condensed statements have been included and are of a normal and
recurring nature.
(2) SUBORDINATED CONVERTIBLE NOTES
In February 1998, the Company consummated a private placement (the "Private
Placement") of $17.0 million in principal amount of 8 1/4% Subordinated
Convertible Notes due 2003 (the "Notes"). Interest on the Notes is payable
semi-annually and during the first two years is payable through the Company's
issuance of additional Notes and thereafter, at the election of the Company, is
payable either in cash or through the issuance of additional Notes. The Notes
are convertible by the holders thereof into shares of the Company's common
stock, $.001 par value (the "Common Stock"), at a conversion price equal to
$17.00 per share (the "Conversion Price") and automatically convert into shares
of Common Stock after February 23, 1999, if the closing price of the Common
Stock, as reported on the Nasdaq SmallCap Market (as defined herein), exceeds
175% of the Conversion Price for a period of twenty consecutive trading days,
including the twenty trading days immediately preceding February 23, 1999. The
Company may redeem the Notes after February 23, 2001 under certain
circumstances. The Company has used and will continue to use the proceeds of the
Private Placement to expand manufacturing operations, accelerate the development
of its direct marketing and distribution organization, and for working capital
and general corporate purposes.
(3) SIGNIFICANT COMMITMENTS
As of May 14, 1998 the Company had open purchase orders of approximately $3
million for component part inventory. This inventory will be used to build
finished goods inventory over approximately the next two quarters for resale to
potential customers.
<PAGE>
(4) NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains, and losses)
in a full set of general-purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income, be reported in a financial statement that is
displayed with the same prominence as other financial statements. This statement
is effective for fiscal years beginning after December 15, 1997. The Company
adopted SFAS No. 130 during the three months ended March 31, 1998 and determined
that there is no material impact to the Company's converse financial statements
and notes thereto.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"). This Statement supersedes
Statement of Financial Accounting Standards No. 14 and parts of various other
statements and provides accounting guidance for reporting information about
operating segments in annual financial statements by public business enterprises
and requires such enterprises to report selected information about operating
segments in interim financial reports. The Statement uses a "management
approach" to identify operating segments. Reportable segments are operating
segments that meet specified quantitative thresholds. The statement also uses a
"management approach" for determining some of the information required to be
disclosed. This statement is effective for fiscal years beginning after December
15, 1997. The Company adopted SFAS No. 131 during the three months ended March
31, 1998 and determined that there is no material impact to the Company's
converse financial statements and notes thereto.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
condensed Financial Statements, including the notes thereto, contained elsewhere
in this 10-QSB and the Company's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1997.
GENERAL
The Company was incorporated in November 1990 and, as a development stage
company, devoted substantially all of its resources to research and development
programs related to its full line of self contained, recycling industrial parts
washers until June 1996. The Company commenced its planned principal operations
in July 1996.
Since July 1996, the Company has made its SystemOne(R) Washer and services
available to the public through a third party leasing program and through direct
sale of the equipment. Under the third party leasing program, the Company
recognizes revenue from the sale of parts washers at the time the equipment is
delivered by the Company. In general, the revenue recognized approximates the
discounted present value of the payment stream related to the underlying lease.
In January 1997, following a four-month test program, the Company entered into a
sales representative agreement with First Recovery, an affiliate of Ashland,
Inc. (the "Representation Agreement") pursuant to which First Recovery served as
the Company's exclusive distributor of the SystemOne/registered trademark/
Washers in 21 metropolitan areas. The Representation Agreement replaced the
Company's original limited pilot program with First Recovery covering the Dallas
and Houston, Texas markets.
In December 1997, the Company entered into a Purchase and Distribution Agreement
with First Recovery (the "Purchase and Distribution Agreement"), which agreement
replaced the Representation Agreement and extended the exclusive distribution
relationship of the parties in a limited territory through June 1998. Although
the Company intends to continue to evaluate and discuss a long-term distribution
agreement or other strategic alliance with First Recovery or other strategic
partner, the Company's immediate focus is on the completion of the development
of its direct marketing and distribution organization. There can be no assurance
that the Company will have any continuing relationship with First Recovery after
the expiration of the Purchase and Distribution Agreement in June 1998.
Pursuant to the Purchase and Distribution Agreement, First Recovery was granted
the exclusive right to purchase SystemOne/registered trademark/ Washers from the
Company and market and distribute such products through sale or lease in a
territory consisting of 21 major metropolitan markets throughout the United
States and to national customers operating in more than one state and in more
than fifteen locations. Within the State of Florida, during the term of the
Purchase and Distribution Agreement, First Recovery may solicit trial placements
of SystemOne(R) Washers on behalf of the Company as a commissioned sales agent
only. Pursuant to the Purchase and Distribution Agreement, First Recovery
purchased, net ninety days, 600 SystemOne(R) Washers during the first quarter of
1998, and this shipment fulfills the First Recovery purchase commitment.
In an effort to enhance long-term profitability, preserve strategic
opportunities and maximize value for its shareholders, in November 1997, the
Company announced plans to develop a direct marketing and distribution
organization for its SystemOne(R) product line. The Company is currently in the
process of ramping up its direct marketing and distribution capabilities and
expects that the investment in its direct distribution infrastructure will
result in a long-term operating strategy that maximizes market share through
aggressive factory direct pricing and increased operating profits. No assurance
can be given that the Company's efforts in establishing direct marketing and
distribution capabilities will be completed, or if completed, will be
successful.
During the period from July 1996 through March 31 1998, the Company sold
3,974 SystemOne(R)Washers,
<PAGE>
3,255 units of which were purchased by First Recovery for sale to third parties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues increased by $129,000 to $1,282,000 for the three months ended March
31, 1998 compared to $1,153,000 for the three months ended March 31, 1997.
Revenues for the three months ended March 31, 1998 of approximately $1,031,000
were attributable to a single customer, First Recovery.
Cost of goods sold increased by $301,000 to $1,049,000 for the three months
ended March 31, 1998 compared to $748,000 for the three months ended March 31,
1997 primarily due to increased sales of SystemOne(R) Washers. As a percentage
of net sales, cost of goods sold represented 81.8% and 64.9% for the three
months ended March 31, 1998 and 1997, respectively.
Selling, general and administrative expenses for the three months ended March
31, 1998 were $1,740,000, an increase of $1,185,000 compared to selling, general
and administrative expenses of $555,000 for the three months ended March 31,
1997. The increase in selling, general and administrative expenses was primarily
the result of the hiring of additional personnel in connection with the
Company's ramping up of its direct marketing and distribution capabilities,
establishment of support centers and the leasing of additional manufacturing
capacity in order to support the Company's increased production.
The Company's research and development expenses decreased by $113,000, or 73.8%,
from $153,000 during the three months ended March 31, 1997 to $40,000 for the
three months ended March 31, 1998. The decrease was primarily the result of the
Company's ongoing engineering during 1997 and increased focus on the
manufacturing and distribution of SystemOne(R) Washers during 1998.
The Company recognized net interest income (expense) of $(94,000) for the three
months ended March 31, 1998, compared to net interest income (expense) of
$59,000 for the three months ended March 31, 1997. The interest income for the
three months ended March 31, 1997 was primarily due to the investment of the
proceeds from the Company's IPO. The interest expense for the three months ended
March 31, 1998 was primarily due to the interest accrued from the Company's
private placement (the "Private Placement") of an aggregate of $17.0 million in
principal amount of 8 1/4% Subordinated Convertible Notes due 2003 (the "Notes")
consummated in February 1998.
As a result of the foregoing, the Company incurred net losses to common shares
of $1,641,000 and $244,000 for the three months ended March 31, 1998 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $18,139,000 and cash and
cash equivalents of $16,363,000.
The Company's primary sources of working capital are the net proceeds from the
Company's Private Placement of Notes consummated in February 1998 and IPO
consummated in October 1996, a receivables factoring arrangement entered into in
November 1997 and its lease financing arrangement with First Sierra.
In February 1998, the Company consummated the Private Placement of the Notes
generating net proceeds of approximately $15.7 million. Interest on the Notes is
payable semi-annually and during the first two years is payable through the
Company's issuance of additional Notes and thereafter, at the election of the
Company, is payable either in cash or through the issuance of additional Notes.
The Notes are convertible by the holders thereof into shares of Common Stock at
a Conversion Price of $17.00 per share. The Notes automatically convert into
shares of Common Stock after February 23, 1999, if the closing price of the
Common Stock, as
<PAGE>
reported on the Nasdaq SmallCap Market, exceeds 175% of the Conversion Price for
a period of twenty consecutive trading days, including the twenty trading days
immediately preceding to February 23, 1999. The Company may redeem the Notes
after February, 2001, under certain circumstances. At March 31, 1998, the
Company retained for its use substantially all of the net proceeds from the
Private Placement. The Company has used and will continue to use the proceeds of
the Private Placement to expand manufacturing operations, accelerate the
development of its direct marketing and distribution organization, and for
working capital and general corporate purposes.
In November 1997, the Company entered into an agreement with a third party
providing for the factoring of the Company's accounts receivable (the "Factoring
Agreement"). Pursuant to the Factoring Agreement, the Company effectively
assigned all eligible receivables due from First Recovery to the third party for
a period of six months. The Company may borrow up to 70% of all eligible
receivables. In connection with this factoring relationship, the Company is
required to pay a semi-annual commission in an amount equal to the greater of
.5% of all factored receivables or $12,000. Any borrowings by the Company
against eligible accounts receivable bear interest at a per annum rate equal to
the greater of 9% or prime plus 1%.
The Company's material financial commitments relate principally to its
obligations to make lease payments pursuant to certain real property and
equipment leases (currently approximately $75,162 per month), and installment
payments for manufacturing equipment (currently approximately $17,132 per
month). The Company anticipates that its material commitments will increase
significantly over the next 12 months in connection with the Company's continued
expansion and development of direct marketing and distribution capabilities.
In 1997, the Company developed a plan to deal with the Year 2000 issue and will
begin upgrading its computer systems to be Year 2000 compliant. The plan
provides for the upgrade efforts to be completed by the end of 1998. The year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable year. The total cost of the project is
estimated to be approximately $36,000 and is being funded through operating cash
flows. The Company will expense all costs associated with these system changes
as the costs are incurred. As of March 31, 1998 $0 had been expensed.
Capital requirements relating to the implementation of the Company's business
plan have been and will continue to be significant. The Company believes that
its ability to generate cash from operations is dependent upon, among other
things, increased demand for its products and services and the successful
development of direct marketing and distribution capabilities. In order to
reduce certain of the Company's up-front capital requirements associated with
manufacturing operations as well as service center and service fleet
development, the Company leases and intends to continue to lease rather than
purchase, to the extent possible, equipment and vehicles. There can be no
assurance that the Company will have sufficient capital resources to permit the
Company to continue implementation of its business plan. Since its inception,
the Company has financed its operations through a number of stock and debt
issuances and conversions.
The Company believes, based on currently proposed plans and assumptions relating
to its operations, that the proceeds from the Private Placement and the
Company's existing financing arrangements, together with cash flow from
operations will be sufficient to satisfy its cash requirements for a period of
at least 12 months. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate or the proceeds from the Private
Placement or available financing arrangements prove to be insufficient to fund
the Company's rapid expansion and development efforts, the Company would be
required to seek additional sources of 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, the Company's business
operations could be materially adversely affected.
As indicated in the accompanying financial statements, as of March 31, 1998, the
Company's accumulated deficit totaled $7,560,000.
<PAGE>
The Company's cash and cash equivalents balance increased by $14,120,000 from
$2,243,000 as of December 31, 1997 to $16,363,000 as of March 31, 1998,
primarily due to the proceeds from the Private Placement. Since the Company
commenced the sale of its products, the Company has experienced negative cash
flow from operations.
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS.
The foregoing Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including, but not limited to, statements regarding growth in sales of
the Company's products and the sufficiency of the Company's cash flow for its
future liquidity and capital resource needs. These forward looking statements
are further qualified by important factors that could cause actual events to
differ materially from those in such forward looking statements. These factors
include, without limitation, increased competition, the sufficiency of the
Company's patents, the ability of the Company to manufacture its systems on a
cost effective basis, market acceptance of the Company's products and the
effects of governmental regulation. Results actually achieved may differ
materially from expected results included in these statements as a result of
these or other factors.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In February 1998, the Company consummated the Private Placement of Notes
generating net proceeds of approximately $15.7 million. At March 31, 1998, the
Company retained for its use substantially all of the net proceeds from the
Private Placement. The Company has used and will continue to use the proceeds of
the Private Placement to expand manufacturing operations, accelerate the
development of its direct marketing and distribution organization, and for
working capital and general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION.
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mansur Industries Inc.
Date: May 15, 1998 /s/ PAUL I. MANSUR
------------------------
PAUL I. MANSUR
Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 /s/ RICHARD P. SMITH
------------------------
RICHARD P. SMITH
Vice President of Finance and Chief
Financial Officer
(Principal Financial Accounting Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,363
<SECURITIES> 0
<RECEIVABLES> 1,622
<ALLOWANCES> 0
<INVENTORY> 1,856
<CURRENT-ASSETS> 19,975
<PP&E> 1,742
<DEPRECIATION> 228
<TOTAL-ASSETS> 21,859
<CURRENT-LIABILITIES> 1,836
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 3,556
<TOTAL-LIABILITY-AND-EQUITY> 21,859
<SALES> 1,282
<TOTAL-REVENUES> 1,282
<CGS> 1,049
<TOTAL-COSTS> 2,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> (1,641)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,641)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,641)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
