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 September 30, 1997
[ ] 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.)
1202N 75th Street, Suite 243, Downers Grove, Illinois 60516
(Address of principal executive offices) (Zip code)
(630) 654-4398
(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, 5,726,442 as of December 29, 1997
<PAGE>
VictorMaxx Technologies, Inc.
Index to Quarterly Report on Form 10-Q
Filed with the Securities and Exchange Commission
for the Three and Nine Month Periods Ended September 30, 1997 and 1996
Page Number
PART I. Financial Information
Item 1: Financial Statements (unaudited)
Balance sheets as of September 30, 1997 and December 31, 1996 3
Statements of operations for the three and nine month periods
ended September 30, 1997 and 1996 4
Statements of cash flows for the nine months ended
September 30, 1997 and 1996 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
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents ...................................... $ -- $ --
Available-for-sale securities .................................. -- --
Accounts receivable, net of allowance .......................... -- 8,759
Interest receivable ............................................ -- --
Inventories .................................................... -- --
Prepaid expenses ............................................... -- --
------------ ------------
Total current assets ..................... -- 8,759
Property and equipment, net of accumulated depreciation
and amortization ............................................ -- 5,000
Other assets ................................................... -- --
------------ ------------
Total assets ............................. $ -- $ 13,759
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 232,941 $ 214,417
Cash overdrafts ................................................ 4,450 4,450
Accrued liabilities ............................................ 417,298 446,564
Legal settlements payable ...................................... 150,000 150,000
Payable to officer ............................................. 5,500 5,500
------------ ------------
Total current liabilites ................. 810,189 820,931
Stockholders' equity:
Preferred stock, par value $.001; 1,000,000 shares authorized,
none issued
Common stock, par value $.001; 20,000,000 shares authorized;
5,726,442 shares issued and outstanding .......................... 5,726 5,726
Additional paid-in capital .......................................... 19,647,981 19,647,981
Accumulated deficit ................................................. (20,463,896) (20,460,879)
------------ ------------
Total stockholders' equity (deficit) ..... (810,189) (807,172)
------------ ------------
Total liabilities and stockholders' equity $ -- $ 13,759
============ ============
The accompanying notes are an integral part of the financial statements
</TABLE>
3
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VictorMaxx Technologies, Inc.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ -- $ 23,632 $ -- $ 746,963
Cost of goods sold 0 5,019 0 1,175,416
---------- ----------- ----------- -----------
Gross profit (deficiency) 0 18,613 0 (428,453)
Operating expenses:
Research and development 0 176,109 0 738,737
Selling, general and administrative 0 478,099 3,017 1,505,656
---------- ----------- ----------- -----------
Total operating expenses 0 654,208 3,017 2,244,393
Loss from operations 0 (635,595) (3,017) (2,672,846)
Other income (expenses):
Interest expense 0 0 0 (2,630)
Interest income 0 0 0 29,543
Other 0 0 0 0
---------- ----------- ----------- -----------
Net loss $ -- $ (635,595) $ (3,017) $(2,645,933)
========== =========== =========== ===========
Per-share data:
Net loss per share $ -- $ (0.11) $ (0.00) $ (0.47)
========== =========== =========== ===========
Weighted average common and
common equivalent shares
outstanding 5,726,442 5,807,161 5,726,442 5,683,623
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
VictorMaxx Technologies, Inc.
Statements of Cash Flows
(unaudited)
Nine months ended
<TABLE>
<CAPTION>
September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,017) $(2,645,933)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment 5,000 89,793
Allowance for doubtful accounts 8,759 --
Amortization of deferred financing costs and original issue discount -- --
Change in operating assets and liabilities:
Accounts receivable -- (4,610)
Interest receivable -- 64,350
Inventories -- 602,406
Prepaid expenses -- 183,600
Other assets -- 61,589
Accounts payable 18,524 (645,626)
Accrued liabilities (29,266) (710,911)
Accrued legal settlement -- (90,000)
Deferred rent -- (8,364)
----------- -----------
----------- -----------
Net cash used in operating activities -- (3,103,706)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment -- (33,397)
Purchases of dies and molds -- --
Proceeds from sale of available-for-sale securities -- 3,303,462
----------- -----------
Net cash provided by (used in) investing activities -- 3,270,065
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable -- --
Repayments of notes payable -- --
Proceeds from issuance of common stock -- --
Decrease in cash overdrafts -- (342,967)
----------- -----------
Net cash (used for) provided by financing activities -- (342,967)
----------- -----------
Net increase (decrease) in cash -- (176,608)
Cash, beginning of period -- 8,674
----------- -----------
Cash, end of period $ -- $ (167,934)
=========== ===========
Supplemental cash flow information:
Interest paid $ -- $ 2,630
=========== ===========
</TABLE>
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 and nine month periods ended September 30, 1997
and 1996 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, 1996. 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 and
nine month periods ended September 30, 1997 are not necessarily indicative of
the results to be expected for the entire year ending December 31, 1997.
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. Loss of Quotation of Securities
On October 23, 1996, the Company received notification from the Nasdaq Listing
Qualifications Panel that because the Company does not currently meet the
maintenance criteria for continued listing of its Securities on The Nasdaq
Small-Cap Market ("Nasdaq"), that its Securities would be delisted from Nasdaq
effective at the close of business on October 24, 1996. Subsequent to that date,
the Securities of the Company have been quoted on the OTC Bulletin Board.
6
<PAGE>
4. Agreement to Acquire Sonoma Holding Corp.
On September 24, 1997, the Company entered into an agreement to acquire all of
the outstanding capital stock of Sonoma Holding Corp. ("Sonoma"). The
transaction, which is expected to close in January 1998, is contingent upon the
fulfillment of certain conditions by both of the parties. The Company will
account for the acquisition as a purchase.
The Company will issue 12,108,558 shares of its common stock and 100,000 shares
of its preferred stock to the shareholders of Sonoma. The former President,
Chief Executive Officer and a Director of the Company is a beneficiary of a
profit sharing plan and trust that is a shareholder of Sonoma. The preferred
shares are convertible into 30,000,000 shares of the common stock of the
Company. Additionally, the Company will issue 1,550,000 shares of its common
stock to certain creditors of the Company in full satisfaction of their claims
against the Company. The creditor group includes the former President, Chief
Executive Officer and a Director of the Company and all of the current officers
and directors of the Company. Additionally, the Company will issue 615,000
shares of its common stock to a group of individuals as a settlement of various
employment claims and as compensation for assisting in the structuring of the
transaction. Included in this group are all of the current officers and
directors of the Company.
Unaudited consolidated financial statements for Sonoma, a diversified industrial
holding company, for the six month period ending June 30, 1997 show sales of
$2,224,040 and pretax earnings of $149,919.
7
<PAGE>
Item 2 --- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company designed, developed, marketed and sold virtual reality products for
home use, principally headsets sold under the trademark CyberMaxx. The Company
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 and deferred development activities on the next generation of the CyberMaxx
headset. 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. 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 write downs were recorded during the fourth quarter of 1996.
The Company expects that a significant portion of its future revenues, if any,
will be dependent upon the ability of its management to acquire another
operating entity to merge into the Company.
Results of Operations
Comparison of the three month period ending September 30, 1997 with the three
month period ending September 30, 1996
Net sales. The Company had no sales for the three month period ending September
30, 1997. Net sales were $23,632 for the three months ending September 30, 1996.
The
8
<PAGE>
Company derived all of its revenues in 1996 from the liquidation of CyberMaxx
and VIR one inventory.
Gross profit. The Company generated no gross profit for the three month period
ending September 30, 1997. The Company had a gross profit of $18,613 for the
three months ending September 30, 1996.
Selling, general and administrative. The Company incurred no selling, general
and administrative expense for the three month period ending September 30, 1997.
Selling, general and administrative expenses totaled $478,099 for the three
month period ending September 30, 1996. Included in the 1996 balance are sales
and promotional expenses of $29,489, non sales compensation expense of $117,304,
net occupancy expenses of $17,692 and legal expenses of $23,576. Additionally,
the Company incurred a non-cash compensation expense of $167,934 during the
third quarter of 1996 related to the issuance of 185,307 shares of restricted
Common Stock to certain employees, directors and consultants to the Company.
Research and development. The Company incurred no research and development
expense for the three month period ending September 30, 1997. Research and
development expenses totaled $176,109 for the three months ending September 30,
1996. Included in the 1996 balance are expenses totaling $130,129 related to the
development of its virtual reality engine and the application software for
Autoduel Online. The remaining expense for 1996 consists primarily of the costs
of the Company's support activities and the cost of providing support to the
entities developing software for the CyberMaxx.
Comparison of the nine month period ending September 30, 1997 with the nine
month period ending September 30, 1996
Net sales. The Company had no sales for the nine month period ending September
30, 1997. Net sales were $746,963 for the nine months ending September 30, 1996.
The 1996 results include liquidation sales totaling $393,382. The company
derived revenues of $594,806, including liquidation sales of $290,125, for the
nine months ending September 30, 1996 from the sale of the CyberMaxx model 2.0
and revenues of $152,157, including liquidation sales of $103,257, from the sale
of the VIR one.
Gross profit (deficiency). The Company generated no gross profit for the nine
month period ending September 30, 1997. The Company had a negative gross profit
of $428,453 for the nine months ending September 30, 1996. The 1996 results
include a net charge of $568,743 to account for the Company's decision to cease
marketing virtual reality hardware products. Included in this charge are
writedowns of $443,033 associated with the sale of liquidated product and a
charge of $344,926 to cover cancellation costs and the cost of excess component
parts held by the Company's contract manufacturer. These charges were partially
offset by the reversal of $219,216 in charges recorded in prior periods to
reserve for the return of obsolete inventory.
9
<PAGE>
Selling, general and administrative. Selling, general and administrative
expenses totaled $3,017 for the nine months ending September 30, 1997 compared
to $1,505,656 for the nine months ending September 30, 1996. The 1997 expense is
net of credits totaling $29,226, which reflect the settlement of certain
employee claims for compensation accrued as of December 31, 1996. Included in
the 1996 balance are sales and promotional expenses of $309,229, non sales
compensation expense of $460,364, occupancy expenses of $60,188 and legal
expenses of $81,898. Additionally, the Company incurred non-cash compensation
expense of $167,934 during the third quarter of 1996 related to the issuance of
185,307 shares of restricted Common Stock to certain employees, directors and
consultants to the Company.
Research and development. The Company incurred no research and development
expense for the nine month period ending September 30, 1997. Research and
development expenses totaled $738,737 for the nine months ending September 30,
1996. Included in the 1996 balance are expenses totaling $427,779 related to the
development of its virtual reality engine and the application software for
Autoduel Online. The remaining expense for 1996 consists primarily of the costs
of the Company's support activities and the cost of providing support to the
entities developing software for the CyberMaxx.
Interest expense. The Company incurred interest expense of $2,630 for the nine
months ending September 30, 1996. The Company did no incur any interest expense
during 1997.
Liquidity and Capital Resources
At June 30, 1997, the Company had no unrestricted cash and cash equivalents and
a net book balance overdraft of $4,450. Subsequent to December 31, 1997, the
Company settled outstanding creditor claims aggregating approximately $530,000
through the issuance of 1,550,000 shares of the common stock of the Company.
Outstanding creditor claims aggregating approximately $200,000 remain unsettled.
The Company's independent accountants have included an explanatory paragraph in
their report for the year ended December 31, 1996 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, 1996 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.
10
<PAGE>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
"Changes in Registrant's Certifying Accountant", filed
September 29, 1997.
"Termination of Merger Agreement and Acquisition of Assets",
filed September 29, 1997.
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 18th day of November, 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)
