UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______________ to
________________.
Commission file number: 0-26328
VICTORMAXX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3971950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
510 Lake Cook Road, Suite 100, Deerfield, Illinois 60015
(Address of principal executive offices) (Zip code)
(847) 267-0007
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Common stock, $.001 Par Value, 5,541,135 as of May 17, 1996
<PAGE>
VictorMaxx Technologies, Inc.
Index to Quarterly Report on Form 10-Q
Filed with the Securities and Exchange Commission
for the Three Months Ended March 31, 1996 and 1995
Page Number
PART I. Financial Information
Item 1: Financial Statements (unaudited)
Balance sheets as of March 31, 1996 and
December 31, 1995 3
Statements of operations for the three months
ended March 31, 1996 and 1995 4
Statements of cash flows for the three months
ended March 31, 1996 and 1995 5
Notes to Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II Other Information 11
SIGNATURES 12
2
<PAGE>
Part I. Financial Information
Item 1: Financial Statements
VictorMaxx Technologies, Inc.
Balance Sheets
March 31, December 31,
ASSETS 1996 1995
------------ ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 4,205 $ 8,674
Available-for-sale securities 898,755 3,303,462
Accounts receivable, net of allowance
of $25,000 25,529 12,536
Interest receivable 4,370 64,350
Inventories 735,616 602,406
Prepaid expenses 162,277 186,830
------------ ------------
Total current assets 1,830,752 4,178,258
Property and equipment, net of accumulated
depreciation and amortization 283,266 275,560
Other assets 74,341 74,341
------------ ------------
Total assets $ 2,188,359 $ 4,528,159
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 325,233 $ 817,619
Cash overdrafts -- 345,214
Accrued liabilities 460,580 1,188,723
------------ ------------
Total current liabilites 785,813 2,351,556
Legal settlements payable, non-current portion 70,000 100,000
Deferred rent 34,889 36,731
------------ ------------
Total liabilities 890,702 2,488,287
------------ ------------
Stockholders' equity:
Preferred stock, par value $.001; 1,000,000
shares authorized, none issued
Common stock, par value $.001; 20,000,000
shares authorized; 5,541,135 shares issued
and outstanding 5,541 5,541
Additional paid-in capital 19,480,232 19,480,232
Accumulated deficit (18,188,116) (17,445,901)
------------ ------------
Total stockholders' equity 1,297,657 2,039,872
------------ ------------
Total liabilities and stockholders' equity $ 2,188,359 $ 4,528,159
============ ============
The accompanying notes are an integral part of the financial statements
3
<PAGE>
VictorMaxx Technologies, Inc.
Statements of Operations
(unaudited)
Three months ended
March 31,
1996 1995
----------- -----------
Net sales $ 146,311 $ 204,574
Cost of goods sold 88,755 211,974
----------- -----------
Gross profit (deficiency) 57,556 (7,400)
Operating expenses:
Research and development 242,615 278,581
Selling, general and administrative 583,815 972,037
Impairment of goodwill 0 1,649,765
----------- -----------
Total operating expenses 826,430 2,900,383
Loss from operations (768,874) (2,907,783)
Other income (expenses):
Interest expense (526) (445,591)
Other, net 27,185 (81,206)
----------- -----------
Net loss $ (742,215) $(3,434,580)
=========== ===========
Per-share data:
Net loss per share $ (0.13) $ (1.55)
=========== ===========
Weighted average common and
common equivalent shares
outstanding 5,623,966 2,209,946
=========== ===========
The accompanying notes are an integral part of the financial statements
4
<PAGE>
VictorMaxx Technologies, Inc.
Statements of Cash Flows
(unaudited)
Three months ended
March 31,
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $ (742,215) $(3,434,580)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of property and
equipment 29,432 78,068
Amortization of goodwill -- 209,157
Amortization of deferred financing costs and
original issue discount -- 321,179
Impairment of goodwill -- 1,649,765
Issuance of common stock in exchange for
professional services -- 5,108
Compensation expense relating to stock options
and warrants -- 948
Change in operating assets and liabilities:
Accounts receivable (12,993) 333,136
Interest receivable 59,980
Inventories (133,210) 142,532
Prepaid expenses 24,553 41,855
Accounts payable (492,386) (288,288)
Accrued liabilities (728,143) 230,087
Accrued legal settlement (30,000)
Deferred rent (1,842) 993
----------- -----------
Net cash used in operating activities (2,026,824) (710,040)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (37,138) (13,226)
Purchases of dies and molds -- (82,266)
Proceeds from sale of available-for-sale
securities 2,404,707 --
----------- -----------
Net cash provided by (used in) investing
activities 2,367,569 (95,492)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable -- 1,004,775
Repayments of notes payable -- (199,243)
Decrease in cash overdrafts (345,214) --
----------- -----------
Net cash (used for) provided by financing
activities (345,214) 805,532
----------- -----------
Net increase (decrease) in cash (4,469) --
Cash, beginning of period 8,674 --
----------- -----------
Cash, end of period $ 4,205 $ --
=========== ===========
Supplemental cash flow information:
Interest paid $ 526 $ 45,627
=========== ===========
The accompanying notes are an integral part of the financial statements
5
<PAGE>
VICTORMAXX TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
1. Basis Of Preparation
The accompanying condensed financial statements of VictorMaxx Technologies, Inc.
(the "Company") for the three month periods ended March 31, 1996 and 1995 have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not misleading.
These condensed financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and operations, contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position and operating results for the
interim periods, have been included. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 1996.
2. Net Loss Per Common Share
The computation of net loss per share is based on the weighted average number of
common and common equivalent shares outstanding (adjusted for a 20.2225 to one
split completed in July 1995) during the period. Common stock equivalents
represent outstanding stock options and warrants which are included in the
weighted average shares pursuant to the treasury stock method. Common share
equivalents attributable to stock options issued within 12 months prior to the
initial public offering have been included in the calculation of net loss per
share as if they were outstanding for the period presented.
3. Letter of Intent to Acquire Fightertown Entertainment, Inc.
On March 22, 1996, the Company entered into a non-binding letter of intent for
the acquisition of Fightertown Entertainment, Inc. ("Fightertown") for 100,000
shares of the Company's $ .001 par value Preferred Stock and the assumption of
Fightertown's liabilities, which are estimated to exceed $1,300,000. The
Preferred Stock which will have a liquidation preference of $101.25 per share,
will be convertible into an aggregate of 4,500,000 of the Company's Common Stock
at the rate of 45 shares of Common Stock for each share of Preferred Stock.
Fightertown, located in Lake Forest, California, has developed an LBE which
provides a simulation of military flying, allowing participants to fly together
in formation or to engage in aerial combat. Fightertown generated revenues of
approximately $1,100,000 in 1995, of which approximately $400,000 were from
hardware shipments and the remainder from flight simulation sales. Fightertown
6
<PAGE>
recorded a loss in excess of $700,000 in 1995. The 1995 financial statements of
Fightertown have not been audited. The acquisition is subject to the
satisfactory conclusion of due diligence, including the evaluation of
Fightertown's proprietary software, the market potential of its product, its
capital requirements, the execution of definitive agreements and other material
conditions.
7
<PAGE>
Item 2 --- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company designs, develops, markets and sells virtual reality products for
home use, principally headsets sold under the trademark CyberMaxx. The Company
has marketed the CyberMaxx through two intensely competitive channels, both
personal computer vendors and consumer electronics vendors, that are
characterized by harsh price competition, rapidly changing product mix and short
product life cycles. The Company's first product, the CyberMaxx 120 model, was
introduced in November 1994. The Company achieved only limited sales from this
product, which has now been discontinued. In 1995 the Company shifted its
primary focus to the development of the more advanced CyberMaxx model 2.0. This
model contains an improved optics system and has 50% more pixels (picture
elements) than the Company's previous model. The Company began shipping the
CyberMaxx model 2.0 in August 1995.
The Company believes that it was the first to sell virtual reality headsets
intended for home use with a suggested retail price of less than $1,000. In
early 1996, the management of the Company concluded that its headset was not
likely to gain widespread consumer acceptance at its suggested retail price of
$889. In February 1996, the Company suspended production of the CyberMaxx model
2.0. In March 1996, the Company lowered the price on the CyberMaxx model 2.0 for
the purpose of stimulating sales at a suggested retail price of $499. In
connection with this price reduction, the Company wrote down its remaining
CyberMaxx model 2.0 inventory, including component parts, and tools and dies
associated with the production of the CyberMaxx to their estimated net
realizable value. These writedowns, which totaled $ 1,705,349, were recorded
during the fourth quarter of 1995. In December 1995, a catalog retailer that
previously had given the Company purchase orders for substantially all of the
Company's remaining inventory of the CyberMaxx 120 model, canceled its purchase
orders. As a result of these cancellations and due to the lack of sales demand
for this product, the Company wrote off the remaining value associated with the
CyberMaxx 120 model. These writedowns, which totaled $331,203, were recorded
during the fourth quarter of 1995.
In January 1996, the Company transferred its product engineering service to its
contract manufacturer and deferred development activities on the next generation
of the CyberMaxx headset. While the Company is currently seeking funding that
would allow it to design and develop the next generation of the CyberMaxx, there
can be no assurances that the Company. has the ability to raise the necessary
financing.
In September 1995, the Company began development of a virtual reality software
system (the "Engine"), which allows for the programming of virtual reality
applications that can be accessed in a multi-user environment. The Company also
began development of a software game called Car Wars, an application which will
run using the Engine.
8
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Currently, the Company plans to initially introduce the game which is based on
characters and other materials licensed from Steve Jackson Games Incorporated,
at either a location based entertainment ("LBE") site or in an on-line version
to be played over the Internet.
The Company expects that a significant portion of its future revenues, if any,
will be dependent upon the sales of the CyberMaxx, the development, introduction
and distribution of complementary products and revenues generated from either
the opening of LBE sites or on-line versions of games to be played over the
Internet.
Results of Operations
Comparison of the three month period ending March 31, 1996 with the three month
period ending March 31, 1995
Net sales. Net sales decreased 28% to $146,311 for the three months ending March
31, 1996 from $ 204,574 for the three months ending March 31, 1995. The company
derived revenues of $126,815 for the three months ending March 31, 1996 from the
sale of the CyberMaxx model 2.0 and revenues of $ 19,496 from the sale of other
products. For the three month period ending March 31, 1995, the Company derived
all of its revenues from the sale of its first product, the CyberMaxx 120, the
manufacture of which was discontinued in January 1995.
Gross profit (deficiency). Gross profit for the three months ending March 31,
1996 was $57,556 compared to a negative gross profit of $7,400 for the three
months ending March 31, 1995. The 1995 cost of sales included a charge of
$64,638 to provide for the accelerated amortization of certain tool and die
costs associated with the CyberMaxx 120.
Selling, general and administrative. Selling, general and administrative
expenses totaled $583,815 for the three months ending March 31, 1996 compared to
$972,037 for the three months ending March 31, 1995. Included in the 1996
balance are sales and promotional expenses of $160,232, non sales compensation
expense of $189,589, occupancy expenses of $31,290 and legal expenses of
$20,327. Included in the 1995 balance are sales and promotional expenses of
$104,298, occupancy expenses of $52,191, legal expenses of $263,454 and goodwill
amortization of $209,157..
Research and development. Research and development expenses totaled $242,615 for
the three months ending March 31, 1996 compared to $278,581 for the three months
ending March 31, 1995. The Company incurred expenses totaling $134,582 related
to the development of its virtual reality engine and the application software
for Car Wars. The remaining expense for both 1996 and 1995 consists primarily of
the costs of the Company's design, quality assurance, engineering support
activities and the cost of providing support to the entities developing software
for the CyberMaxx. The Company intends to continue to commit significant
resources to the development of its virtual reality engine and Car Wars.
9
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Impairment of Goodwill. Effective March 31, 1995 the Company wrote off the
remaining unamortized balance of goodwill related to the acquisition from
Bankers by recording a charge to operations of $1,649,765. The charge was
recorded as a result of the Company's evaluation of its existing products,
customer base and core technologies, all of which have undergone significant
change since the date of acquisition, the Company's inability to achieve sales
backlogs and the continuing and expected future losses. After consideration of
these factors and the expectation that the Company would continue to operate at
a loss in, the Company concluded that the recorded goodwill was impaired.
Interest expense. The Company incurred interest expense of $526 for the three
months ending March 31, 1996 compared to $445,591 for the three months ending
March 31, 1995. Included in the 1995 expense are charges of $386,181 related to
various bridge financings, including the amortization of deferred financing
costs and original issue discount and the accrual of interest. The bridge
financings were repaid from the net proceeds of the Company's initial public
offering which was completed in August 1995. Miscellaneous interest charges
totaled $59,410
Liquidity and Capital Resources
At March 31, 1996, the Company had unrestricted cash and cash equivalents of
$4,205. In addition, at March 31, 1996, the Company had $898,755 of securities
classified as available for sale, $800,000 of which was restricted pursuant to a
standby letter of credit issued as a guarantee to the Company's contract
manufacturer. The balance of the letter of credit was reduced to $175,000 on
April 15, 1996. The securities available for sale consist solely of obligations
of government agencies. During the three months ended March 31, 1996, operating
activities used $2,026,824 of net cash and equivalents, investing activities
provided $2,367,568 of net cash and equivalents.
The Company, expects to incur non-cash compensation expense of approximately
$200,000 in 1996 related to the planned issuance of 114,140 shares of restricted
Common Stock to a Vice President of the Company.
The Company's independent accountants have included an explanatory paragraph in
their report for the year ended December 31, 1995 making reference to the
Company's note to financial statements (Note 1), which discusses the fact that
the Company's financial statements for the year ended December 31, 1995 have
been prepared assuming that the Company will continue as a going concern and
that the substantial losses from operations suffered by the Company and its
significant reliance on obtaining continued financing to satisfy its liquidity
requirements raise substantial doubt about the Company's ability to continue as
a going concern. Management of the Company is currently evaluating various forms
of financing, including debt financing and public or private equity financing.
While the Company's management believes that additional financing will be
10
<PAGE>
available to the Company, there can be no assurances that the Company has the
ability to raise the necessary financing to enable it to conduct its on-going
business activities.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1996.
11
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Signatures
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Deerfield
and State of Illinois on the 17th day of May, 1996.
VictorMaxx Technologies, Inc.
By:/s/ Richard H. Currie
-----------------------------------
Richard H. Currie
President and Chief Executive Officer
By:/s/ Glenn Petersen
-----------------------------------
Glenn Petersen
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the three months ended March 31, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,205
<SECURITIES> 898,755
<RECEIVABLES> 54,899
<ALLOWANCES> 25,000
<INVENTORY> 735,616
<CURRENT-ASSETS> 1,830,752
<PP&E> 372,388
<DEPRECIATION> 89,122
<TOTAL-ASSETS> 2,188,359
<CURRENT-LIABILITIES> 785,813
<BONDS> 0
0
0
<COMMON> 5,541
<OTHER-SE> 1,292,116
<TOTAL-LIABILITY-AND-EQUITY> 2,188,359
<SALES> 146,311
<TOTAL-REVENUES> 146,311
<CGS> 88,755
<TOTAL-COSTS> 160,232
<OTHER-EXPENSES> 666,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 526
<INCOME-PRETAX> (742,215)
<INCOME-TAX> 0
<INCOME-CONTINUING> (742,215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (742,215)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
