U.S. 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, 2003
COMMISSION FILE NO. 000-21325
SYSTEMONE TECHNOLOGIES INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0226813
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8305 N.W. 27TH STREET, SUITE 107
MIAMI, FLORIDA 33122
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(305) 593-8015
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE REGISTRANT (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST 12
MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90
DAYS.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
THE REGISTRANT HAD AN AGGREGATE OF 4,940,065 SHARES OF ITS COMMON STOCK, PAR
VALUE $.001 PER SHARE, OUTSTANDING AS OF THE CLOSE OF BUSINESS ON MAY 15, 2003.
SYSTEMONE TECHNOLOGIES INC.
INDEX TO FORM 10-QSB
QUARTER ENDED MARCH 31, 2003
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited) 3
Condensed Balance Sheets-
As of March 31, 2003 (unaudited) and December 31, 2002 3
Condensed Statements of Operations-
For the three months ended March 31, 2003 and 2002 (unaudited) 4
Condensed Statements of Cash Flows-
For the three months ended March 31, 2003 and 2002 (unaudited) 5
Notes to Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Certifications 24
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SYSTEMONE TECHNOLOGIES INC.
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, December 31,
2003 2002
--------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 583 $ 505
Receivables, net of allowance of $123 and $123 3,730 2,586
Inventories 1,359 1,251
Prepaid and other assets 287 384
-------- --------
Total current assets 5,959 4,726
Property and equipment, net 1,046 1,133
Non-current portion of receivables, net of discount 2,135 2,009
Other assets 280 316
-------- --------
Total assets $ 9,420 $ 8,184
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 1,650 $ 1,253
Warranty accrual 402 435
Deferred revenue 99 106
Current installments of long-term debt and obligations
under capital leases 339 142
-------- --------
Total current liabilities 2,490 1,936
Long-term debt 30,692 30,835
Warranty accrual, non-current 266 239
-------- --------
Total liabilities 33,448 33,010
-------- --------
Commitments and contingencies
Redeemable convertible preferred stock, $1.00 par value per
share. Authorized 1,500,000 shares, 185,973 issued and
Outstanding (182,270 in 2002), at liquidation value 18,597 18,227
Less unamortized discount (827) (1,008)
-------- --------
Net redeemable convertible preferred stock 17,770 17,219
-------- --------
Stockholders' deficit:
Common stock, $0.001 par value per share. Authorized
25,000,000 shares, issued and outstanding 4,940,065
(4,742,923 in 2002) 5 5
Additional paid-in capital 20,723 20,723
Deficit (62,526) (62,773)
-------- --------
Total stockholders' deficit (41,798) (42,045)
-------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit $ 9,420 $ 8,184
======== ========
See accompanying notes to condensed financial statements (unaudited).
3
SYSTEMONE TECHNOLOGIES INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
(In thousands, except share and per share data)
March 31, March 31,
2003 2002
--------- ---------
Revenue $ 5,624 $ 4,454
Costs of goods sold 3,379 2,609
------- -------
Gross profit 2,245 1,845
------- -------
Operating expenses:
Selling, general and administrative 654 695
Research and development 97 72
------- -------
Total operating expenses 751 767
------- -------
Profit from operations 1,494 1,078
------- -------
Interest expense (798) (943)
Interest income 119 73
------- -------
Interest expense, net (679) (870)
------- -------
Income before income tax provision 815 208
------- -------
Income tax provision 16 --
------- -------
Net income 799 208
Dividends and accretion of discount on redeemable
convertible preferred stock (552) (523)
------- -------
Net income (loss) to common shares $ 247 $ (315)
======= =======
Basic net income (loss) per common share $ .05 $ (.07)
======= =======
Diluted net income (loss) per common share $ .04 $ (.07)
======= =======
See accompanying notes to condensed financial statements (unaudited) .
4
SYSTEMONE TECHNOLOGIES INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
(In thousands)
March 31, March 31,
2003 2002
--------- ---------
Cash flows provided by operating activities:
Net income $ 799 $ 208
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 116 132
Amortization of debt issue costs 36 75
Interest accrued on convertible debt and amortization of
note discounts 605 704
Recoveries of doubtful accounts -- (33)
Changes in operating assets and liabilities:
Receivables (1,270) (525)
Inventories (108) (151)
Prepaid and other assets 97 (66)
Accounts payable and accrued expenses 397 (196)
Warranty accrual (6) (110)
Deferred revenue (7) --
------- -----
Net cash provided by operating activities 659 38
------- -----
Cash flows used in investing activities:
Purchase of equipment (6) (14)
------- -----
Net cash used in investing activities (6) (14)
------- -----
Cash flows used in financing activities:
Repayments of long-term debt (529) --
Repayments of capital lease obligations (46) (71)
------- -----
Net cash used in financing activities (575) (71)
------- -----
Net increase (decrease) in cash and cash
equivalents 78 (47)
Cash and cash equivalents at beginning of period 505 59
------- -----
Cash and cash equivalents at end of period $ 583 $ 12
======= =====
Supplemental disclosures:
Cash paid for interest $ 159 $ 164
------- -----
Non-cash financing and investing activities
Acquisition of equipment through a capital lease $ 23 $ --
------- -----
See accompanying notes to condensed financial statements (unaudited).
5
SYSTEMONE TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING
PRONOUNCEMENTS
SystemOne Technologies Inc. (the "Company") designs, manufactures and sells a
full line of patented, self-contained, recycling industrial parts washers, (the
"SystemOne(R) Washers"), for use in the automotive, aviation, marine and general
industrial repair markets. The Company has been awarded 11 patents for its
products, which incorporate innovative, proprietary resource recovery and waste
minimization technologies to distill contaminated solvent and yield pure solvent
and a by-product comparable to used motor oil. The SystemOne(R) Washer
integrates a distillation and recovery process which allows the solvent to be
used, treated and re-used on demand, without requiring off-site processing. The
Company was incorporated in November 1990 and commenced the sale of SystemOne(R)
Washers in July 1996 and began to generate significant revenue from product
sales in 1997.
The Company's operating expenses, however, increased significantly between 1997
and 2000 in connection with the development of a national direct marketing and
distribution organization, including the establishment of regional distribution
centers and a service fleet. As a result, the Company could not sustain the cost
of this marketing and distribution organization, and elected to enter into an
exclusive marketing agreement, as described below in footnote 2, and began
shipping SystemOne(R) parts washer equipment to Safety-Kleen, as defined below,
in January 2001. During 2000, the Company's operating subsidiary was merged with
and into the Company and the Company changed its name to SystemOne Technologies
Inc.
The Company restructured its operations in the fourth quarter of 2000 related to
implementing the Exclusive Marketing Agreement, as defined below, with
Safety-Kleen.
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002 as filed with the Securities and
Exchange Commission.
Management acknowledges its responsibility for the preparation of the
accompanying interim financial statements which reflect all adjustments
considered necessary, in the opinion of management, for a fair statement of the
6
results of interim periods presented. The results of operations for the interim
periods are not necessarily indicative of the results of operations for the
entire year. Where appropriate, certain amounts have been reclassified to
conform with the 2003 presentation.
(2) LIQUIDITY
The Company continues to operate under the Marketing and Distribution Agreement,
as amended (the "Exclusive Marketing Agreement") with Safety-Kleen Systems,
Inc., a wholly-owned subsidiary of Safety-Kleen Corp. (collectively,
"Safety-Kleen"). Safety-Kleen currently operates as a debtor in possession under
the protection of the bankruptcy court.
The Exclusive Marketing Agreement (a) makes Safety-Kleen the exclusive marketer,
distributor and service provider for certain models of the Company's parts
washing equipment in the United States, Puerto Rico, Canada and Mexico (the
"Territory"), and (b) obligates Safety-Kleen to purchase minimum quantities of
the Company's parts washing equipment for each contract year through December
26, 2005, the initial term of the Exclusive Marketing Agreement. The Exclusive
Marketing Agreement may be extended for two additional five-year terms subject
to the parties reaching an agreement in writing as to Safety-Kleen's minimum
purchase commitments for each contract year during any renewal term. The initial
term of the Exclusive Marketing Agreement is not terminable except for cause or
mutual agreement. The Company retains the rights to sell, lease, rent and
service all of the Company's parts washing equipment outside the Territory and,
subject to Safety-Kleen's right of first offer, other product lines within the
Territory.
The minimum annual sales under the Exclusive Marketing Agreement escalated from
10,000 equivalent units during each of the first two contract years to 12,500
equivalent units in year three (which began December 26, 2002), 15,000
equivalent units in year four (beginning December 26, 2003) and 18,000
equivalent units in year five (beginning December 26, 2004), at specified
prices, including deferred payments on each unit sold, payable in equal
installments.
Under the Exclusive Marketing Agreement, the majority of the sales price payable
for each unit purchased by Safety-Kleen, is payable on net 30 day terms from
date of shipment with a portion of the sales price payable in equal installments
over a 12 quarter period and is accounted for as set forth in Note 4 to the
condensed financial statements.
In December 2002, the Company completed an exchange of its then outstanding (1)
8.25% Subordinated Convertible Notes due February 23, 2003, and (2) 16%
Promissory Notes due November 30, 2002 for now outstanding (x) 8.25%
Subordinated Convertible Notes due December 31, 2005, (y) 10% Promissory Notes
due December 31, 2005, and (z) warrants to purchase shares of the Company's
common stock, $.001 par value per share at an exercise price of $.01 per share.
In connection with the Exchange, the holders of the Company's outstanding shares
of Preferred Stock agreed to extend the date upon which the Company must redeem
7
such shares from May 17, 2004 to the earlier of the 90th day after all of the
Subordinated Convertible Notes are paid in full or March 31, 2006 (but not
earlier than May 17, 2004).
Although the Company believes that it will continue to be able to meet its
operating cash requirements, assuming Safety-Kleen's continued performance, if
none of the outstanding convertible debt and convertible preferred stock is
converted to common stock, significant amounts of cash would be required,
commencing in 2005 to repay long term debt, accrued interest and redeemable
preferred stock as follows:
DEBT PLUS INTEREST PREFERRED STOCK TOTAL
------------------- ---------------------- -------------------------
2003 $ 114,861 $ -- $ 114,861
2004 11,175 11,175
2005 35,025,535 35,025,535
2006 23,618,000 * 23,618,000
------------------- ---------------------- -------------------------
Total $35,151,571 $23,618,000 $58,769,571
=================== ====================== =========================
* Assuming no pre-payment of Subordinated Convertible Notes.
The Company entered into an agreement on February 15, 2003 to extend the
maturity from May 30, 2003 to May 30, 2005 of the Company's Senior Revolver.
(3) STOCK BASED COMPENSATION
The Company applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for the Company's stock compensation plan. No
compensation cost is reflected in the Company's net income related to the stock
option plans for the periods presented because all options had an exercise price
greater than or equal to the market value of the underlying common stock on the
date of the grant. Had the expense for the Company's stock-based compensation
been determined using the fair value method defined in Financial Accounting
Standard (FAS) 123, "Accounting for Stock-Based Compensation" and FAS 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" the
Company's net income and net income per share would have been reduced to the pro
forma amounts indicated below:
8
FOR THE THREE MONTHS
ENDED MARCH 31, 2003 2002
-------------------- ------------------
Net income (loss) to common shares:
As reported $247 $(315)
Incremental compensation expense (21) (61)
-------------------- ------------------
As adjusted 226 (376)
==================== ==================
Basic earnings (loss) per share:
As reported .05 (.07)
As adjusted .05 (.08)
Diluted earnings (loss) per share
As reported .04 (.07)
As adjusted .04 (.08)
(4) REVENUE RECONGITION
Under the Exclusive Marketing Agreement, the majority of the sales price payable
for each unit sold to Safety-Kleen is due on net 30 day terms from date of
shipment with a portion of the sales price payable in equal installments over a
12 quarter period. The Company recognizes revenue at the time of shipment for
the entire sales price but applies a discount to reflect the present value of
the 12 quarterly payments utilizing a discount rate which is currently 14%. In
addition, the Company recognizes imputed interest income over the discount
period as the deferred portion of the purchase price is amortized over the
scheduled payment period. At March 31, 2003, approximately $1,578,000 was
included in receivables representing the then current portion of the installment
payments and approximately $2,135,000 is due beyond 12 months as reflected in
the balance sheet as Non-current portion of receivables, net of discount. The
Company expects this receivable to grow throughout the term of the Exclusive
Marketing Agreement. Safety-Kleen has generally made its payments in accordance
with the terms of the Exclusive Marketing Agreement and the Company considers
this receivable from Safety-Kleen to be collectable. If the discount rate were
to vary by 100 basis points up or down, the Company's annual pre-tax income
would vary by approximately $41,000.
9
(5) EARNINGS (LOSS) PER SHARE
The following reconciles the components of the earnings (loss) per share (EPS)
computation (in thousands)
FOR THE THREE MONTHS
ENDED MARCH 31,
2003 2002
--------------------------------------------- -----------------------------------------------
Income Shares Per-Share Income/(Loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------- ----------------- ------------ ---------------- ---------------- -------------
Earnings per common share:
Net income (loss) $799 4,881 $.16 $208 4,743 $.04
Dividends on
Redeemable
Convertible
Preferred stock (552) (523)
-------------- ----------------- ------------ ---------------- ---------------- -------------
Net income (loss) applicable
to common shareholders $247 4,881 $.05 ($315) 4,743 ($.07)
Effect of dilutive
securities:
Warrants 847
-------------- ----------------- ------------ ---------------- ---------------- -------------
Net income (loss) applicable
to common shareholders plus
assumed conversions $247 5,728 $.04 ($315) 4,743 ($.07)
-------------- ----------------- ------------ ---------------- ---------------- -------------
Warrants to purchase 29,750 shares, 1,250 shares, 942,858 shares, 571,428
shares and 1,134,615 shares at $19.50, $11.50, $3.50, $3.50 and $3.50 per share
respectively, Convertible Preferred Stock Series B, C & D and Subordinated
Convertible Notes of $6,372,681, $8,465,694 and $2,334,781 and $21,163,277
convertible at $4.68, $3.50, $3.50 and $17.00 respectively, in addition to
503,966 stock options with exercise prices ranging from $19.50 to $3.50
were outstanding as of March 31, 2002, but were not included in the computation
of diluted EPS as they are antidilutive due to the Company's loss.
Warrants to purchase 29,750 shares, 1,250 shares, 942,858 shares, 571,428
shares and 1,134,615 shares at $19.50, $11.50, $3.50, $3.50 and $3.50 per share
respectively, Convertible Preferred Stock Series B, C & D and Subordinated
Convertible Notes of $6,909,325, $9,156,540 and $2,531,456 and $22,676,671
convertible at $4.68, $3.50, $3.50 and $17.00 respectively, in addition to
533,716 stock options with exercise prices ranging from $19.50 to $ 2.50 were
outstanding as of March 31, 2003, but were not included in the computation
of diluted EPS as the respective conversion or exercise prices were greater
than the average market price of the common shares.
(6) STOCKHOLDERS' DEFICIT
On January 28, 2003, 200,000 warrants previously issued to the holders of
Subordinated Convertible Notes were converted into common stock according to
10
a provision of the warrants providing for a cashless exercise transaction. The
200,000 warrants were converted to 197,142 shares of the Company's common stock
at the market price of $.70 on the day of the conversion.
(7) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply 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.
Realization of deferred tax assets associated with federal and state net
operating loss carry-forwards ("NOLs") is dependent upon generating sufficient
taxable income prior to their expiration. The Company believes that there is a
risk that these NOLs may expire unused and accordingly, has established a
valuation reserve against them in full. The current income tax provision of
$16,000 represents the Company's alternative minimum tax liability for the three
months ended March 31, 2003. There was no such provision for the period ended
2002.
(8) NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging Issues Task
Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Under SFAS No. 146, a liability related to
an exit or disposal activity (including restructurings) is not recognized until
such liability has actually been incurred whereas under EITF Issue No. 94-3 a
liability was recognized at the time of a commitment to an exit or disposal
plan. The provisions of this standard are effective for disposal activities
initiated after December 31, 2002. The adoption of SFAS No. 146 did not
materially impact the Company's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial statements.
11
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure. This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in the financials statements about the
effects of stock-based compensation. The transitional guidance and annual
disclosure provisions of this Statement was effective for the December 31, 2002
financial statements. The interim reporting disclosures requirements are
effective for the Company's March 31, 2003 financial statements. Because the
Company continues to account for employee stock-based compensation under APB
opinion No. 25, the transitional guidance of SFAS No. 148 has no effect on the
financial statements at this time. However, in the December 31, 2002 financial
statements the Company has incorporated the enhanced disclosure requirements of
SFAS No. 148.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities ("VIE's") created after January 31, 2003, and to VIE's in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to VIE's in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of the applicable
interim or annual period. The adoption of FIN 46 is not expected to have a
material impact on the Company's financial position, liquidity, or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Financial Statements, including the notes thereto, contained elsewhere in this
10-QSB and the Company's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 2002.
GENERAL AND RECENT DEVELOPMENTS
The Company was incorporated as Mansur Industries Inc. 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 and began to generate significant
revenue from product sales in 1997. The Company's operating expenses, however,
increased significantly between 1997 and 2000 in connection with the development
of a national direct marketing and distribution organization, including the
12
establishment of regional distribution centers and a service fleet. As a result,
the Company could not sustain the cost of this marketing and distribution
organization, and elected to enter into a distribution agreement with
Safety-Kleen.
Commencing in the first quarter of 2001, shifting its strategy, the Company
appointed Safety-Kleen the exclusive distributor for SystemOne(R) parts washers
in the United States, Puerto Rico, Canada and Mexico under the Exclusive
Marketing Agreement. This strategic shift has allowed the Company to eliminate
its entire national direct sales and service infrastructure permitting a
significant reduction in the Company's operating expenses.
In June 2002, the Company began the process of attaining ISO 9001:2000
certification. ISO 9001:2000 is part of a family of international quality
standards which require the Company to establish and maintain a quality system.
The Company's quality system will include internal quality audits, corrective
and preventive action systems, management review and continual third party
assessments. This quality system is being implemented to ensure maximum customer
satisfaction by offering the highest quality product. The Company expects to be
certified by Perry Johnson, Inc., a training, consulting and implementation
firm, in the 3rd quarter of 2003.
In December 2002, the Company completed an exchange of its then outstanding (1)
8.25% Subordinated Convertible Notes due February 23, 2003, and (2) 16%
Promissory Notes due November 30, 2002 for now outstanding (x) 8.25%
Subordinated Convertible Notes due December 31, 2005, (y) 10% Promissory Notes
due December 31, 2005, and (z) warrants to purchase shares of the Company's
common stock, $.001 par value per share at an exercise price of $.01 per share
(the "Exchange"). See "Liquidity and Capital Resources" for a detailed
discussion of the Exchange.
In connection with the Exchange, the holders of the Company's outstanding shares
of Preferred Stock agreed to extend the date upon which the Company must redeem
such shares from May 17, 2004 to the earlier of the 90th day after all of the
Subordinated Convertible Notes are paid in full or March 31, 2006 (but not
earlier than May 17, 2004).
The Company entered into an agreement on February 15, 2003 to extend the
maturity of the Company's Senior Revolver from May 30, 2003 to May 30, 2005.
On January 28, 2003, 200,000 warrants previously issued to the holders of
Subordinated Convertible Notes were converted into common stock according to
a provision of the warrants providing for a cashless exercise transaction. The
200,000 warrants were converted to 197,142 shares of the Company's common stock
at the market price of $.70 on the day of the conversion.
13
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Revenues increased by $1,170,000, or 26.3%, to $5,624,000 for the three months
ended March 31, 2003 from $4,454,000 for the comparable period of 2002. The
revenue increase was a result of (i) a 22.7% increase in units sold resulting
from the increase in Safety Kleen's minimum annual purchase commitment from
10,000 equivalent units in the prior year to 12,500 equivalent units in 2003
(ii) a price increase of approximately 2.3% pursuant to the Exclusive Marketing
Agreement and (iii) a 251.5% increase in parts sold to Safety-Kleen. Sales
during the 2003 and 2002 periods were entirely to Safety-Kleen.
Gross margin as a percentage of sales was 39.9% and 41.4% for the three months
ended March 31, 2003 and 2002, respectively. The decrease in gross margin is
primarily due to higher raw material costs during the three months ended March
31, 2003 offset by reductions in production labor of approximately 7% and
plant overhead of approximately 20% resulting from producing more units
utilizing the existing personnel and facilities.
Selling, general and administrative expenses for the three months ended March
31, 2003 were $654,000, a decrease of $41,000, or 5.9%, compared to selling,
general and administrative expenses of $695,000 for the three months ended March
31, 2002. Despite an increase in sales of 26.3%, selling, general and
administrative costs decreased due to a reduction in rent of $52,000 offset by
an increase in insurance of $13,000. In the second quarter of 2002, the Company
returned approximately 13,000 square feet of idle capacity to the landlord
thereby reducing rent expense.
Research and development expenses increased by $25,000 from $72,000 for the
three months ended March 31, 2002 to $97,000 for the three months ended March
31, 2003. The increase is due primarily to an increase in wages for the
Company's engineers and increased expenditures for supplies necessary to develop
the Company's new SystemOne(R) Spray Gun Washer, which is ready for commercial
availability. The Company has shipped five units to prospective customers for
free trials which were completed in the second quarter of 2003.
The Company recognized an operating profit of $1,494,000 for the three months
ended March 31, 2003 compared to an operating profit of $1,078,000 for the
comparable period in 2002. This improvement is due largely to the increase in
minimum annual sales pursuant to the Exclusive Marketing Agreement discussed
above.
14
Interest expense for the three months ended March 31, 2003 was $798,000, a
decrease of $145,000 or 15.4% compared to interest expense of $943,000 for the
three months ended March 31, 2002. The decrease in interest expense is due to
(i) fully amortizing in January 2002 debt discount associated with common stock
warrants issued to lenders during the third and fourth quarters of 2000 (ii)
reducing the outstanding principal on the Senior Revolver and (iii) a reduction
in the interest rate on the Subordinated Promissory Notes from 16% in 2002 to
10% in 2003. The decrease is partially offset by increased debt balances
attributable to capitalization of accrued interest in connection with the
December 9, 2002 debt restructuring.
Interest income increased $46,000 from $73,000 in the first quarter of 2002 to
$119,000 in the first quarter of 2003. The increase is due primarily to the
increase in the deferred portion of the sales price resulting from the
cumulative increase in units sold under the Exclusive Marketing Agreement. As
more units are sold, the Company expects interest income and the receivable
related to the deferred portion of the sales price to increase.
Income tax provision increased $16,000 from nothing in the first quarter of 2002
to $16,000 in the first quarter of 2003. The increase is due primarily to the
alternative minimum tax payable as a result of the Company recognizing net
income in the first quarter of 2003.
Dividends on redeemable convertible preferred stock increased by $29,000 or 5.5%
to $552,000 for the three months ended March 31, 2003 from $523,000 for the
comparable period of 2002. The increase is due to the compounding effect of
paying dividends on additional shares of preferred stock that were previously
issued as paid-in-kind dividends.
As a result of the foregoing, the Company recognized net income attributable to
common shares of $247,000 for the three months ended March 31, 2003, an increase
of $562,000 or 178.4% compared to a net loss attributable to common shares of
$315,000 for the three months ended March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March 31,
2003 increased by $621,000 to $659,000, compared to net cash provided by
operating activities of $38,000 for the three months ended March 31, 2002. The
increase is primarily attributable to an increase in net income of $591,000
which increased from $208,000 for the three months ended March 31, 2002 to
$799,000 for the three months ended March 31, 2003. This increase from net
income is offset by an increase in receivables which is due to: (i) an increase
in sales volume attributable to the 25% increase in equivalent units to be sold
in 2003 (ii) the increase in the deferred portion of the sales price (iii) a
2.3% increase in the sales price and (iv) timing of cash collections. The
deferred portion of the sales price will continue to increase as more units are
shipped. The source of cash from the increase in accounts payable and accrued
expenses is due primarily to more favorable terms with vendors and increased
purchases to support the higher inventory levels necessary to sustain the
contracted 25% increase in equivalent units to be sold in 2003.
Net cash used in investing activities for the three months ended March 31, 2003
was $6,000, a decrease of $8,000, compared to $14,000 used in investing
activities during the comparable period of the prior year. This decrease is
primarily a result of purchasing more manufacturing equipment with cash in the
first three months of 2002 than in the same period in 2003. The Company
purchased manufacturing equipment totaling approximately $23,000 through a
capital lease during the quarter ended March 31, 2003.
15
Net cash used in financing activities for the three months ended March 31, 2003
was $575,000 compared to net cash used in financing activities of $71,000 for
the three months ended March 31, 2002. The increase of $504,000 is due primarily
to repayments on the Senior Revolver during the 2003 period compared to no
repayments in the 2002 period. The Company is currently using available cash to
pay down the Senior Revolver. The increase is offset by lower repayments of
capital lease obligations due to several leases being paid off in 2002.
At March 31, 2003, the Company had working capital of $3,469,000 and cash and
cash equivalents of $583,000, compared to working capital of $2,790,000 and cash
and cash equivalents of $505,000 at December 31, 2002. The increase in working
capital is primarily due to the increase in receivables attributable to
accumulation of the current portion of the deferred portion of the purchase
price which is offset in part by the increase in accounts payable and accrued
expenses explained above.
The Company's material short-term financial commitments are obligations to make
lease payments on the Company's principal executive and manufacturing facility
in Miami, Florida and equipment leases (approximately $39,000 per month),
installment payments for financed manufacturing equipment (approximately $17,000
per month), interest payments on the Company's 8.25% Subordinated Convertible
Notes (approximately $151,000 per month) of which 50% accrues and 50% is paid in
cash beginning January 1, 2003, interest under the Secured Notes (as defined
below) which accrues and is due at maturity (approximately $37,000 per month)
and interest payments on the Senior Revolver (up to approximately $54,000 per
month). Dividends on the Company's Series B, Series C, and Series D Convertible
Preferred Stock can be paid by issuance of additional shares of such series.
The Company's primary sources of cash are proceeds from its sales to
Safety-Kleen and the Senior Revolver. Safety-Kleen is currently under
reorganization pursuant to Chapter 11 of the federal Bankruptcy Code and there
can be no assurance that Safety-Kleen will be able to continue its operations as
currently conducted or otherwise be in a position to perform under the Exclusive
Marketing Agreement. In November 2002, Safety-Kleen filed a restructuring plan
with the bankruptcy court and filed an amendment to the plan with the bankruptcy
court in February 2003. The Senior Revolver provides the Company with a $5
million revolving line of credit. Pursuant to the Senior Revolver, the Company
may borrow twice a month up to the Advance Limit. The Advance Limit is the
lesser of $5,000,000 or the sum of the Advance Supplement, as defined, plus an
amount based on the Company's receivables and inventory. As of March 31, 2003,
there was approximately $860,000 credit available on the Senior Revolver.
In December 2002, the Company completed an exchange of its then outstanding (1)
8.25% Subordinated Convertible Notes due February 23, 2003, and (2) 16%
Promissory Notes due November 30, 2002 for now outstanding (x) 8.25%
Subordinated Convertible Notes due December 31, 2005, (y) 10% Promissory Notes
due December 31, 2005, and (z) warrants to purchase shares of the Company's
common stock, $.001 par value per share at an exercise price of $.01 per share.
16
In connection with the Exchange, the holders of the Company's outstanding shares
of Preferred Stock agreed to extend the date upon which the Company must redeem
such shares from May 17, 2004 to the earlier of the 90th day after all of the
Subordinated Convertible Notes are paid in full or March 31, 2006 (but not
earlier than May 17, 2004).
Although the Company believes that it will continue to be able to meet its
operating cash requirements, assuming Safety-Kleen's continued performance, if
none of the outstanding convertible debt and convertible preferred stock is
converted to common stock, significant amounts of cash would be required,
commencing in 2005 to repay long term debt, accrued interest and redeemable
preferred stock as follows:
DEBT PLUS INTEREST PREFERRED STOCK TOTAL
------------------- ---------------------- -------------------------
2003 $ 114,861 $ -- $ 114,861
2004 11,175 11,175
2005 35,025,535 35,025,535
2006 23,618,000 * 23,618,000
------------------- ---------------------- -------------------------
Total $35,151,571 $23,618,000 $58,769,571
=================== ====================== =========================
* Assuming no pre-payment of Subordinated Convertible Notes.
The Company is required to issue an additional 942,858 warrants to the holders
of its Secured Notes if the Company (i) sells debt or equity securities, or debt
securities convertible into equity securities, or incurs debt with a final
scheduled maturity date more than twelve months after issuance providing gross
cash proceeds to the Company in an amount equal to or greater than the
outstanding principal amount of the Secured Notes or (ii) enters into a merger,
consolidation, sale of all or substantially all of its assets or other business
combination transaction with a party that prior to such transaction owns less
than 25 percent of the voting power of the Company's outstanding equity
securities. The fair market value of the warrants would be charged to operations
should the warrants become issuable.
The Company entered into an agreement on February 15, 2003 to extend the
maturity of the Company's Senior Revolver from May 30, 2003 to May 30, 2005.
CRITICAL ACCOUNTING POLICIES
Management believes the following policies are critical to an understanding of
the Company's financial statements.
REVENUE RECOGNITION. The majority of the sales price payable for each unit
purchased by Safety-Kleen, is payable on net 30 day terms from date of shipment
with a portion of the sales price payable in equal installments over a 12
quarter period. The Company recognizes revenue at the time of shipment (F.O.B.
shipping dock) for the entire sales price but applies a discount to reflect the
17
present value of the 12 quarterly payments utilizing a discount rate which is
currently 14%. The discount rate used is the Company's incremental borrowing
rate which is determined to be the interest rate paid on its Senior Revolver of
14%. In addition, the Company recognizes interest income as the deferred portion
of the purchase price is amortized over the scheduled payment period. At March
31, 2003, $1,578,000 was included in receivables representing the then current
portion of the installment payments and $2,135,000 was due beyond 12 months as
reflected in the balance sheet as Non-current portion of receivables, net of
discount. The Company expects this receivable to grow throughout the term of the
Exclusive Marketing Agreement. Safety-Kleen has generally made its payments in
accordance with the terms of the Exclusive Marketing Agreement and the Company
considers this receivable from Safety-Kleen to be collectable. Based on the
current level of the deferred portion of the purchase price, if the discount
rate were to vary by 100 basis points, up or down, the Company's annual income
would vary by approximately $41,000. The collectability of receivables is
evaluated routinely and, if deemed necessary, the Company records an allowance
for doubtful accounts. The allowance for doubtful accounts was $123,287 and
$123,174 at December 31, 2002 and March 31, 2003, respectively. Pursuant to the
Exclusive Marketing Agreement, the price charged to Safety-Kleen is determined
annually based on the actual manufacturing costs incurred during a three month
period in the latter part of the previous year.
Deferred revenue on the balance sheet relates to extended two-year warranty
contracts purchased by customers and is recognized in income on the
straight-line basis over the terms of each contract.
PRODUCT WARRANTY. The Company generally warrants that its products will be free
of material defects during the three year warranty period. Safety-Kleen assumed
all service, maintenance and repair responsibilities for the Company's installed
base of SystemOne(R) parts washers including units sold before the Exclusive
Marketing Agreement and units sold pursuant to the Exclusive Marketing
Agreement. The Company is responsible for the cost of all parts required for
service during the warranty period for all units sold. For units sold before the
Exclusive Marketing Agreement, the Company agreed to pay Safety-Kleen a total
fee of $500,000 for all warranty service to be performed by Safety-Kleen on
these units. The balance of the $500,000 fee due as of March 31, 2003 was
$25,000 and was paid in full subsequent to quarter end. For units sold pursuant
to the Exclusive Marketing Agreement, Safety-Kleen is responsible for the cost
of all service, maintenance and repair during the warranty period. The Company
accrues estimated standard warranty costs as the parts washers are sold to
customers.
USE OF ESTIMATES. Management of the Company uses estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
18
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including, but not limited to, statements regarding growth in sales of
the Company's products and the sufficiency of the Company's cash flow for its
future liquidity and capital resource needs. These forward looking statements
are further qualified by important factors that could cause actual events to
differ materially from those in such forward looking statements. These factors
include, without limitation, increased competition, the sufficiency of the
Company's patents, the ability of the Company to manufacture its products on a
cost effective basis, market acceptance of the Company's products, the effects
of governmental regulation and the ability of the Company to obtain adequate
financing to support its operational and marketing plans, the expansion of its
services network and future product development. Results actually achieved may
differ materially from expected results included in these statements as a result
of these or other factors. In particular, the Company's performance for the
foreseeable future will be dependent almost completely on the performance of
Safety-Kleen, the acceptance by Safety-Kleen's customers of the Company's
products, the ability of Safety-Kleen to resell or rent the Company's products
at attractive price levels, the ability of Safety-Kleen to properly service the
Company's products, the ability of the Company to successfully market and sell
its products in international markets and commercialize new products under
development, as well as other factors. In addition, Safety-Kleen is currently
under reorganization pursuant to Chapter 11 of the federal Bankruptcy Code and
there can be no assurance that Safety-Kleen will be able to continue its
operations as currently conducted or otherwise be in a position to perform under
the Exclusive Marketing Agreement.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF THE COMPANY'S DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Within
the 90 days prior to the date of this Quarterly Report on Form 10-QSB, the
Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures ("Disclosure Controls") and its internal
controls and procedures for financial reporting ("Internal Controls"). This
evaluation (the "Controls Evaluation") was done under the supervision and with
the participation of the Company's management, including its Chief Executive
Officer ("CEO") and Director of Finance and Administration / Principal Financial
Officer (PFO). Rules adopted by the SEC require that in this section of the
Quarterly Report the Company present the conclusions of its CEO and the PFO
about the effectiveness of the Company's Disclosure Controls and Internal
Controls based on and as of the date of the Controls Evaluation.
CEO AND PFO CERTIFICATIONS. Appearing immediately following the Signatures
section of this Quarterly Report are "Certifications" of the CEO and the PFO.
The Certifications are required in accord with Section 302 of the Sarbanes-Oxley
19
Act of 2002 (the "Section 302 Certifications"). This section of this Quarterly
Report is the information concerning the Controls Evaluation referred to in the
Section 302 Certifications and this information should be read in conjunction
with the Section 302 Certifications for a more complete understanding of the
topics presented.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Disclosure Controls are procedures
that are designed with the objective of ensuring that information required to be
disclosed in the Company's reports filed under the Securities Exchange Act of
1934 ("Exchange Act"), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's ("SEC") rules and forms. Disclosure Controls are also
designed with the objective of ensuring that such information is accumulated and
communicated to the Company's management, including the CEO and PFO, as
appropriate to allow timely decisions regarding required disclosure. Internal
Controls are procedures which are designed with the objective of providing
reasonable assurance that (1) the Company's transactions are properly
authorized, recorded and reported; and (2) the Company's assets are safeguarded
against unauthorized or improper use, to permit the preparation of the Company's
financial statements in conformity with generally accepted accounting
principles.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The Company's management,
including the CEO and PFO, does not expect that the Company's Disclosure
Controls or its Internal Controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
SCOPE OF THE CONTROLS EVALUATION. The CEO/PFO evaluation of the Company's
Disclosure Controls and Internal Controls included a review of the controls'
objectives and design, the controls' implementation by the Company and the
effect of the controls on the information generated for use in this Quarterly
Report. In the course of the Controls Evaluation, management sought to identify
20
data errors, controls problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This
type of evaluation will be done on a quarterly basis so that the conclusions
concerning controls effectiveness can be reported in the Company's Quarterly
Reports on Form 10-QSB and Annual Report on Form 10-KSB. The overall goals of
these various review and evaluation activities are to monitor the Company's
Disclosure Controls and Internal Controls and to make modifications as
necessary; the Company's intent in this regard is that the Disclosure Controls
and the Internal Controls will be maintained as dynamic systems that change
(including with improvements and corrections) as conditions warrant.
Among other matters, management sought in its evaluation to determine whether
there were any "significant deficiencies" or "material weaknesses" in the
Company's Internal Controls, or whether the Company had identified any acts of
fraud involving personnel who have a significant role in the Company's Internal
Controls. In the professional auditing literature, "significant deficiencies"
are referred to as "reportable conditions"; these are control issues that could
have a significant adverse effect on the ability to record, process, summarize
and report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a relatively low level
the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. In accordance with SEC requirements, the CEO and PFO note
that, since the date of the Controls Evaluation to the date of this Quarterly
Report, there have been no significant changes in Internal Controls or in other
factors that could significantly affect Internal Controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
CONCLUSIONS. Based upon the Controls Evaluation, the Company's CEO and PFO have
concluded that, subject to the limitations noted above, our Disclosure Controls
are effective to ensure that material information relating to the Company is
made known to management, including the CEO and PFO, particularly during the
period when the Company's periodic reports are being prepared, and that the
Company's Internal Controls are effective to provide reasonable assurance that
its financial statements are fairly presented in conformity with generally
accepted accounting principles.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
Current Report on Form 8-K filed March 18, 2003 reporting
items 5 and 7
22
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SYSTEMONE TECHNOLOGIES INC.
Date: May 15, 2003 /s/ Paul I. Mansur
-----------------------------------------
PAUL I. MANSUR
Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2003 /s/ Steven M. Healy
-----------------------------------------
STEVEN M. HEALY
Director of Finance and Administration
(Principal Financial Accounting Officer)
23
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Paul I. Mansur, Chief Executive Officer of SystemOne Technologies Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SystemOne
Technologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Paul I. Mansur
-------------------------
Paul I. Mansur
Chief Executive Officer
24
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Steven M. Healy, Director of Finance and Administration (Principal Financial
Officer) of SystemOne Technologies Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SystemOne
Technologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Steven M. Healy
-------------------------------------
Steven M. Healy
Director of Finance and Administration
(Principal Financial Officer)
25