SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
1(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997 or
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from
to
Commission file number 0-9255
Dencor Energy Cost Controls, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-0658020
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1450 West Evans, Denver, Colorado 80223
(Address Of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (303) 922-1888
Securities registered pursuant to Section 12 (b) of the Act: None
None
(Title of Each Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock No Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act 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
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or an
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $444,500
As of February 28, 1998 there were 3,671,304 common shares outstanding and the
aggregate market value of the common shares (based upon the average of the bid
price ($0.03) and the asked price ($0.06) reported by brokers) held by
non-affiliates was approximately $125,100.
Transitional Small Business Disclosure Format (check one): Yes ; No X
<PAGE>
PART I
ITEM 1. Business
(a) General Development of Business. Dencor Energy Cost Controls, Inc. (the
"Company") was incorporated on January 16, 1974, under the laws of the State
of Colorado for the purpose of developing, manufacturing, and marketing
electronic devices. Currently the Company's primary activity is the
manufacture and sale of electrical demand controllers which manage electricity
consumed in residences and commercial establishments and energy control
devices used by utilities to modify residential energy use patterns. The
Company has its headquarters, production facilities, and research and
development laboratories in Denver, Colorado. In 1997, the Company entered
into discussions concerning a possible merger with Proven Alternative, Inc., a
San Francisco based integrated energy and process management firm. The merger
was not completed and discussions have been discontinued.
(b) Business of Issuer. The Company is engaged in only one industry, that of
designing, developing, manufacturing, marketing, and installing products and
systems which assist in controlling the cost of energy utilization.
Management of the Company does not recognize any significant business
difference, at least at this time, between sales of residential demand
controllers, special relay equipment for utilities, temperature activated duty
cyclers, commercial demand controllers, and interlocks.
(1) Principal Products Produced and Services Rendered
(i) Energy Management Systems - Residential
The Company's primary business is the assembly and sale of control systems
which reduce electrical energy costs. Its principal product is the electrical
demand controller that enables a homeowner having an electric heating system
or a central air conditioning system to control the peak use of electricity.
This enables the homeowner to achieve cost savings in geographic locations
served by electric utilities that include a demand factor in their residential
billing rates. Demand rates are used by electric utilities to encourage
consumers to reduce their peak usage of electricity.
A demand controller monitors the total power consumption and turns off
selected loads, typically heating circuits, during peak consumption periods,
restoring them at the end of that period. The controller automatically keeps
the consumption within the level selected. The principal markets for
residential demand control systems are in regions served by utilities with a
demand rate for residential customers. The residential demand controller is
designed for homes heated electrically by baseboard heaters, radiant heaters,
heat pumps, electric boilers and electric furnaces, and may also be used to
control air conditioners.
The sale of residential demand control systems contributed 55% of total
Company sales during 1997.
(ii) Energy Management Systems - Commercial
The Company has developed demand controllers for commercial buildings. One
model of the commercial systems includes a graphics system to interface
commercial demand controllers to IBM compatible computers. These controllers
are designed to permit demand monitoring and controller parameter changes from
a remote location by use of telephone lines and a modem. This graphics system
can display minute-by-minute demand data as well as 15-minute, daily
summaries. All data is also stored in an Access database on computer disk for
later inspection. The sale of commercial demand control systems contributed
24% of total Company sales during 1997.
(iii) Special Utility Products
The Company has developed a series of products used to control water heaters,
space heaters, and air conditioners for specific utility applications. Sales
of these products accounted for 21% of total Company sales in 1997. The
Company anticipates a gradual growth in this portion of the business.
(2) Distribution Methods of Products
The Company's demand control systems are currently being marketed through
traditional electrical distribution channels. They are being sold to
electrical distributors who, in turn, market and distribute these systems to
electrical contractors who provide installation services to the builder or to
the consumer. The Company also sells to dealers who specialize in selling
energy products to customers and also utilizes manufacturer's representatives
to promote the distribution of its products. The Company also sells to
organizations that have lease/purchase plans with customers. This enables the
customer to realize cost savings which usually approximate or exceed the lease
payments.
(3) Status of any Publicly Announced New Products or Services
During 1997 the Company developed new software for use with its series of
commercial energy administration systems. This new software gathers data from
a number of remote locations and aggregates the demand data. It also
calculates diversified demand as a function of time and temperature. It also
calculates coincidence factor. This new product is in production.
(4) Competitive Conditions
Competition is intense in the energy management control system market. The
Company competes directly with several relatively small electronic companies
in its residential controller market, and with the major manufacturers of
electrical controls for its commercial demand controllers.
Several companies manufacture systems which are similar in concept to the
Company's demand controllers. Many of the companies with which the Company
competes and will be competing in both the residential and commercial market
have substantially greater financial and technical capabilities. Products of
these companies often compete directly with those being offered by the Company
and with those currently in development.
The Company strives to produce high quality products which may be priced
slightly higher than the competition.
(5) Sources and Availability of Raw Materials
The Company has approximately 16 suppliers for its components. Its
semi-conductor components are made by a variety of primary semi-conductor
manufacturers. The Company also has components made to order from several
local and national vendors. It is believed that adequate sources are
available and the Company has had no significant difficulty in obtaining
components. The Company believes other alternate sources are available if
required. The principal suppliers are: Circle AW, Deltrol, and Star
Circuits. Its suppliers' productive capacities are believed to be sufficient
to meet any rapid delivery requirements of customers or to any continuous
allotment of goods.
<PAGE> (6) Major Customers
During 1997, three major customers accounted for 44% of the Company's net
sales. These customers are not affiliated with the Company. One of these
customers accounting for 15% of the Company's net sales ceased operation in
September 1997. The loss of any other of these customers may adversely affect
the Company's business.
As of February 28, 1998, the Company had a backlog of orders totaling $28,488
consisting of equipment orders from distributors and utilities. The Company
anticipates filling these orders during the current year. The backlog of
orders as of February 28, 1997 was $12,678.
(7) Patents
Most of the Company's demand control systems are not protected by any
patents. While management believes that patent protection may be desirable in
some instances, it does not consider such protection essential to the ultimate
success of the Company. A patent was issued April 4, 1989 for a
Variable-Limit Demand Controller for Metering Electrical Energy. In 1991 the
Company entered into a non-exclusive licensing agreement with an unrelated
third party for use of the Company's patent. A patent was issued October 7,
1997 for an Adaptive Load Cycler for Controlled Reduction of Energy Use.
(8) Government Approval
There is no requirement for government approval of principal products or
services. The Company has no government contracts.
(9) Government Regulations
There is no known material effect from known or probable government
regulations.
(10) Research and Development
In the fiscal years ended December 31, 1997 and 1996 the Company expended
$92,900 and $69,700, respectively, on Company sponsored research and
development activities. The Company plans to continue research and
development activities during 1998.
(11) Environmental Protection
The Company's compliance with federal, state, and local laws and regulations
relating to the discharge of material into the environment or otherwise
relating to the protection of the environment does not have a material impact
on the Company's capital expenditures.
(12) Employees
On February 28, 1998, the Company had 5 full-time employees. Two were engaged
in administration, two in production, and one in engineering research and
development.
ITEM 2. Properties
The Company leases 5,100 sq. ft. of office, research and development, sales,
and manufacturing space at 1450 West Evans, Denver, Colorado for
$2,682/month. Management considers these facilities to be adequate for its
requirements for the immediate future. This lease expires in April 1998.
See Note 7 of the Notes to Financial Statements for additional information
about the Company's commitments under terms of non-cancelable leases.
ITEM 3. Legal Proceedings
The Company is not a party to any legal proceedings other than ordinary
routine litigation incidental to its business, nor, to the best of its
knowledge, are any such proceedings threatened or contemplated.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
(a) The principal market on which the Company's common stock is traded is the
Over-the-Counter market. The table below presents the high and low bid price
for the Company's common stock each quarter during the past two years and
reflects inter-dealer prices, without retail markup, markdown, or commission,
and may not represent actual transactions. The Company obtained the following
information from brokers who make a market in the Company's securities.
Bid Bid
Quarter Ended Low High Quarter Ended Low High
03/31/97 $.01 $.06 03/31/96 $.01 $.06
06/30/97 .01 .06 06/30/96 .01 .06
09/30/97 .01 .06 09/30/96 .01 .06
12/31/97 .01 .06 12/31/96 .01 .06
(b) Holders. The approximate number of holders of record of the Registrant's
Common Stock as of February 28, 1998 was 340.
(c) The Registrant has paid no dividends from inception to date and does not
currently intend to do so.
<PAGE>
ITEM 6.Management's Discussion and Analysis
(a) Selected Financial Data
Year Ended December 31
1997 1996 1995 1994 1993
Net Sales $437,700 $388,700 $567,900 $547,300 $549,700
Net Earnings (Loss) (74,200) (74,400) 11,300 (42,800) (126,800)
Net Earnings (Loss) Per
Common Share (.02) (.02) * (.01) (.03)
Weighted Average
Common Shares
Outstanding 3,671,304 3,671,304 3,671,304 3,671,304 3,671,304
* Less than $.01 per share
AT YEAR END
Total Assets $201,700 $217,400 $275,800 $248,700 $261,900
Working Capital (Deficiency) (102,600) (16,700) 50,600 32,900 78,100
Shareholders' Equity (Deficit)(85,500) (11,300) 63,100 51,800 94,600
No dividends have been declared or paid for any of the periods presented.
(b) Liquidity and Capital Resources
The independent auditors' report on the Company's financial statements for the
year ended December 31, 1997, included a "going concern" explanatory
paragraph, which means that the auditors have expressed substantial doubt
about the Company's ability to continue as a going concern. Management plans
in regard to the factors which prompted the explanatory paragraph are
discussed in Note 2 to the Company's December 31, 1997 financial statements.
The Company considers, and currently uses for internal management purposes, a
number of measures of liquidity. These measures include the Current Ratio
which is the ratio of current assets to current liabilities and the Sales to
Working Capital Ratio. Working capital is current assets less current
liabilities.
1997 1996 1995
Current Ratio .64 .93 1.24
Sales to Working Capital -- -- 11.22
Sales to Total Assets 2.17 1.79 2.06
The major factors affecting these ratios were the net income in 1995 and the
net losses for 1997 and 1996. The Company has made extensive use of
short-term debt as summarized in the following table:
Maximum Average Weighted
Weighted amount amount average
Balance at average outstanding outstanding interest
end of interest during the during the rate during
Notes Payable period rate period period period
Shareholders $118,500 18.4% $118,500 $101,700 18.1%
The weighted average interest rate during the period was based on the
outstanding balance and interest rate at each month-end for each note. The
Company anticipates continuing short term borrowing in 1998. The Company
currently has no line of credit. If working capital beyond that provided by
cash flow is needed, additional debt financing will be sought. If traditional
debt financing is not available, the Company will attempt to raise working
capital by private borrowing including stock holder loans, or sales of stock
through private placements although no assurances can be given that financing
will be available. The Company at
present has no long-term debt.
Recent SFAS pronouncements: The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128 during 1997. This statement requires dual
presentation of basic and diluted earnings per share (EPS) with a
reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Basic EPS
amounts are based on the weighted average shares of common stock outstanding.
Diluted EPS reflects the potential dilution that could occur if securities
other than contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in
the earnings of the entity. The Company had no potential common stock
instruments which would result in diluted EPS in 1997 and 1996. The adoption
of SFAS No. 128 did not impact previously reported EPS.
The Financial Accounting Standard's Board recently issued SFAS No.'s 130 and
131, "Reporting Comprehensive Income" and "Disclosures about Segments of an
Enterprise and Related Information," respectively. Both of these statements
are effective for fiscal years beginning after December 15, 1997. SFAS No.
130 establishes requirements for disclosure of comprehensive income which
includes certain items previously not included in the statement of income
including minimum pension liability adjustments and foreign currency
translation adjustments, among others. Reclassification of earlier financial
statements for comparative purposes is required. SFAS No. 131 revises
existing standards for reporting information about operating segments and
requires the reporting of selected information in interim financial reports.
SFAS No. 131 also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Management believes that
implementation of SFAS No.130 and No. 131 will not materially impact the
Company's financial statements.
(c) Results of Operations
The Company's sales in 1997 of $437,700 were 13 percent higher than the net
sales of $388,700 in 1996. Approximately 22% of the sales increase was due to
dealer sales increases. Distributor sales also experienced an increase of
approximately 7%, while international and utility sales decreased by
approximately 28%. The net loss for 1997 was $74,200 compared to net loss of
$74,400 in the prior year.
Gross Margins. The gross margin percentages were 47% and 46%, of sales for
1997 and 1996, respectively.
Selling Expenses. Selling expenses as a percentage of sales increased to 6%
in 1997 compared to 5.7% in 1996. The primary reason for the increase was an
increase in printing expense.
General and Administrative Expense. General and administrative expenses as a
percentage of sales have decreased to 32.4% in 1997 compared to 37.7% in 1996
primarily due to an 11% increase in net sales. Additionally, the Company
received an expense reimbursement of $15,000 from Proven Alternatives, Inc.
<PAGE>
Research and Development. Research and development expenses increased 33%
in 1997 compared to 1996 due to an increase in software development activity.
Inflation. Inflation has no significant impact on the operations of the
Company.
Management's Plans. The Company's 1998 operating plan includes achieving
increased sales goals and continuing its cost reduction program. Management
believes that actions presently being taken to revise the Company's operating
and financial requirements will enable the Company to meet its cash flow needs
during 1998.
<PAGE>
ITEM 7. Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Dencor Energy Cost Controls, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Dencor Energy Cost Controls,
Inc. (the Company) as of December 31, 1997, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the
years in the two-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dencor Energy Cost Controls,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company reported a $74,200 net loss for the year
ended December 31, 1997, and a shareholders' deficit and a working capital
deficiency of $85,500 and $102,600, respectively, as of December 31, 1997.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
February 16, 1998
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Current assets:
Cash $ 8,300
Accounts receivable, net of allowance
for doubtful accounts of $6,700 (Note 9) 20,500
Inventories (Note 4) 149,700
Prepaids and other 6,100
Total current assets 184,600
Furniture and equipment 213,300
Less accumulated depreciation 213,300
Long term receivables, net of allowance
for doubtful receivables of $9,400 (Note 3) 17,100
$ 201,700
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable - shareholders (Note 5) $ 118,500
Accounts payable 51,500
Accrued compensation and benefits 36,600
Accrued interest and other - shareholders (Note 5) 72,200
Warranty reserve 6,300
Other 2,100
Total liabilities (all current) 287,200
Commitments (Note 7)
Shareholders' deficit (Note 8):
Common stock, no par value; authorized,
5,000,000 shares; issued and outstanding,
3,671,304 shares 1,147,600
Accumulated deficit (1,233,100)
(85,500)
$ 201,700
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,1997 AND 1996
1997 1996
Revenues:
Net sales $ 437,700 $ 388,700
Interest and other 6,800 8,300
444,500 397,000
Costs and expenses:
Cost of products sold 231,300 208,600
Selling 26,300 22,100
General and administrative 141,900 146,500
Research and development 92,900 69,700
Provision for doubtful
receivables 5,300 5,100
Interest, substantially to
related parties (Note 5) 21,000 19,400
518,700 471,400
Net loss $ (74,200) $ (74,400)
Loss per common share $ (.02) $ (.02)
Weighted average common shares
outstanding 3,671,304 3,671,304
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31,1997 AND 1996
Common Stock
Accumulated Shareholders'
Shares Amount deficit equity (deficit)
Balances, January 1, 1996 3,671,304 $1,147,600 ($1,084,500) $63,100
Net loss (74,400) (74,400)
Balances, December 31, 1996 3,671,304 1,147,600 (1,158,900) (11,300)
Net loss (74,200) (74,200)
Balances, December 31, 1997 3,671,304 $1,147,600 $(1,233,100) $ (85,500)
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,1997 AND 1996
1997 1996
Cash flows from operating activities:
Net loss $ (74,200) $ (74,400)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 2,000 3,900
Provision for doubtful receivables 5,300 5,100
Changes in operating assets and
liabilities:
Accounts receivable 39,800 16,600
Inventories (6,100) 30,600
Prepaids and other 2,200
Long term receivables (20,800)
Accounts payable 18,200 (17,600)
Accrued compensation and benefits 6,000 7,900
Accrued interest and other - shareholders 18,600 18,100
Deposits (9,900) 9,900
Other liabilities 500 (2,300)
Total adjustments 55,800 72,200
Net cash used in
operating activities (18,400) (2,200)
Cash flows from financing activities:
Proceeds from notes payable - shareholders 25,100
Proceeds from notes payable - others 23,000
Principle payments on notes payable - others (23,000)
Net cash provided by financing activities 25,100
Net increase (decrease) in cash 6,700 (2,200)
Cash, beginning 1,600 3,800
Cash, ending $ 8,300 $ 1,600
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ 500 $ 200
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,1997 AND 1996
1. Organization and significant accounting policies:
Organization:
Dencor Energy Cost Controls, Inc. (the Company) manufactures and markets
electrical energy cost control devices and equipment which are sold
primarily to distributors and dealers in the United States and Canada.
There is only one business segment.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out; FIFO) or
market.
Furniture, equipment, and depreciation:
Furniture and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
related assets of three to five years.
Research and development:
Research and development costs are charged to operations as incurred.
Product warranties:
Estimated costs related to product warranties are provided for at the time
of sale.
Earnings (loss) per share:
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128 during 1997. This statement requires dual presentation of basic and
diluted earnings per share (EPS) with a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS amounts are based
on the weighted average shares of common stock outstanding. Diluted EPS
reflects the potential dilution that could occur if securities other
than contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. The Company had no potential
common stock instruments which would result in diluted EPS in 1997 and
1996. The adoption of SFAS No. 128 did not impact previously reported
EPS.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1997 AND 1996
1. Organization and significant accounting policies (continued):
Accounting for income taxes:
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. 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 reverse. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in the statement of operations in the period that includes
the enactment date.
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Recently issued accounting standards:
The Financial Accounting Standard's Board recently issued SFAS No.'s 130
and 131, "Reporting Comprehensive Income" and "Disclosures about Segments
of an Enterprise and Related Information," respectively. Both of these
statements are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes requirements for disclosure of
comprehensive income which includes certain items previously not included
in the statement of income including minimum pension liability
adjustments and foreign currency translation adjustments, among others.
Reclassification of earlier financial statements for comparative purposes
is required. SFAS No. 131 revises existing standards for reporting
information about operating segments and requires the reporting of
selected information in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. Management believes
that implementation of SFAS No.130 and No. 131 will not materially
impact the Company's financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1997 AND 1996
2. Going concern, results of operations, and management's plans:
The Company's financial statements for the year ended December 31, 1997
have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments
in the normal course of business. For the year ended December 31, 1997,
the Company reported a $74,200 net loss and a shareholders' deficit and
a working capital deficiency of $85,500 and $102,600, respectively, at
December 31, 1997. The Company has also experienced difficulty and
uncertainty in meeting its liquidity needs. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
The Company's 1998 operating plan includes achieving increased sales goals
and maintaining its cost reduction program, which primarily includes a
reduction in labor costs. Management believes that actions presently
being taken under its 1998 operating plan will enable the Company to meet
its cash needs in 1998. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue
as a going concern.
3. Long-term receivables:
Long-term receivables consist of a $6,100 note and other receivables due on
demand from a customer. The note bears interest at 18% and is unsecured.
4. Inventories:
Inventories at December 31, 1997 consist of:
Finished products $ 8,400
Work in progress - sub-assemblies 34,900
Raw materials - component parts 106,400
$ 149,700
The elements of cost in inventories include materials, labor and overhead.
5. Notes payable - shareholders:
The notes payable to shareholders are unsecured, due on demand, and bear
interest at 12% to 18.25% per year. The weighted average interest rates
during the years ended December 31, 1997 and 1996 were approximately
18.1% and 18.4%, respectively. Interest expense of approximately $20,500
and $18,400 associated with these notes payable was charged to operations
for the years ended December 31, 1997, and 1996, respectively.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1997 AND 1996
6. Income taxes:
The components of the deferred tax assets as of December 31, 1997, were as
follows:
Current deferred tax assets:
Receivables, due to
allowance for doubtful accounts $ 3,200
Inventories, due to obsolescence reserve
and additional costs inventoried for tax purposes 21,100
Compensated absences 4,700
Warranty reserve 1,300
Total current gross deferred tax assets 30,300
Less valuation allowance (30,300)
Net current deferred tax assets $ -
Noncurrent deferred tax assets:
Net operating loss carryforwards $ 174,900
Other tax credits carryforwards 33,000
Total noncurrent gross deferred tax assets 207,900
Less valuation allowance (207,900)
Net noncurrent deferred tax assets $ -
The net increase during the year in the total valuation allowance was
$21,100.
The difference between taxes computed at the statutory federal tax rate
and the effective tax rate is reconciled below:
Years ended December 31,
1997 1996
Income tax benefit computed at
statutory federal tax rate $ 13,600 $ 13,600
Deferred tax benefit not recognized (13,600) (13,600)
Income tax benefit computed at the
effective tax rate $ - $ -
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1997 AND 1996
6. Income taxes (continued)
At December 31, 1997, the Company had net operating loss and general
business credit carryforwards which may be used to reduce future taxable
income and taxes payable, respectively, and which expire through 2012 as
follows:
Net General
operating business
loss credit
carryforwards carryforwards
1998 $192,500 $ 300
1999 91,200
2000
2001
Thereafter 553,800 32,700
$837,500 $ 33,000
7. Commitments:
The Company leases its facility and certain equipment under non-cancelable
operating leases that expire in 1998 and 1999, respectively. Future
rentals on the non-cancelable operating leases for equipment are
approximately $2,300, and $1,600. Lease rental expense of approximately
$40,900 and $39,300 were charged to operations for the years ended
December 31, 1997 and 1996, respectively.
8. Common stock:
At December 31, 1997, the Company has reserved 196,000 shares of common
stock for issuance under a restricted stock bonus plan. All employees
and directors of the Company, with the exception of the President, are
eligible to receive stock bonuses under this plan. There have been no
shares issued under this plan.
9. Concentration of credit risk:
The Company extends credit based on an evaluation of each customer's
financial condition, generally without requiring collateral. Exposure to
losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit losses
and maintains allowances for anticipated losses.
During 1997, three customers accounted for approximately 17%, 15% and 12%
of net sales. The customer that accounted for 15% of net sales ceased
operations in September 1997. During 1996, two customers accounted for
approximately 23% and 21% of net sales. As of December 31, 1997, all of
the Company's long-term receivables were due from a single customer.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1997 AND 1996
10. Fair value of financial instruments:
The carrying values of the Company's financial instruments, including
cash, accounts receivables, accounts payable and accrued liabilities,
approximate fair values primarily because of the short maturities of
these instruments. The fair values of net long-term receivables
approximate their carrying values as a result of the valuation allowance
applied to these receivables. The fair values of notes due to
shareholders are not practicable to estimate, due to the indefinite
payment terms of the amounts, and due to the related party nature of the
underlying transactions.
<PAGE>
ITEM 8. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
None
PART III
ITEM 9. Directors and Executive Officers of the Registrant
(a) Identification of Directors
The following information, as of February 28, 1998, is furnished with respect
to each Director:
Year First
Elected as
Name of Director Age Director Position with Company
Theodore A. Hedman 59 1988 Director, Vice President, Secretary,
Manager of Engineering
Edmund Barbour 74 1997 Director, Treasurer
Maynard L. Moe 63 1974 Chairman of Board and President
All Directors serve for one-year terms which expire at the annual shareholders
meeting in 1998. For the period ended December 31, 1997, all corporate
officers were also directors.
(b) Identification of Executive Officers
Position
Name of Officer Age (Date Elected To Position)
Theodore A. Hedman 59 Director, Vice President, Secretary,
Manager of Engineering (March 24, 1988)
Edmund Barbour 74 Treasurer (July 15, 1997); Director
Maynard L. Moe 63 Chairman of the Board & President
(January 16, 1974); Director
All officers serve at the pleasure of the Board.
There are no family relationships among the officers or directors listed, and
there are no arrangements or understandings pursuant to which any of them were
elected as officers.
Dr. Moe has served as President for the Registrant since 1974.
Mr. Hedman has been Manager of Engineering for Dencor since 1979.
Since 1987 Edmund Barbour has been an economics consultant.
There have been no events under any bankruptcy act, no criminal proceedings
and no judgments or injunctions material to the evaluation of the ability and
integrity of any director or executive officer during the past 5 years.
Based on information furnished to Registrant, no officer, director, or ten
percent shareholder failed to file on a timely basis reports on Forms 3, 4, or
5 during the most recent two fiscal years.
ITEM 10. Executive Compensation
Summary Compensation Table
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by the Chief
Executive Officer and President of the Company. No executive officer of the
Company, including the Chief Executive Officer and President, received total
salary and bonus exceeding $100,000 during any of the last three fiscal years.
Summary Compensation Table
Annual Compensation Long Term Compensation
All
Other Restricted Other
Name and Annual Stock LTIP Compen-
Principal Fiscal Salary Bonus Compensation Awards Options Payouts sation
Position Year ($) ($) ($) # ($) (4)
(1) (2) (3) (4) (5) (6) (7)
Maynard Moe 1997 $68,600 -0- -0- -0- -0- -0- -0-
Chief Execu-
tive Officer, 1996 54,672 -0- -0- -0- -0- -0- -0-
President and
a Director 1995 67,000 -0- -0- -0- -0- -0- -0-
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) During the periods covered by the Summary Compensation Table, the Company
did not pay any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal benefits,
securities or property.
(4) During the periods covered by the Summary Compensation Table, the Company
did not make any award of restricted stock.
(5) The Company has had no stock option plans.
(6) The Company has a Restricted Stock Bonus Plan, the purpose of which is to
attract and retain qualified personnel for responsible positions. The
Company has remaining 196,000 shares of the Company's authorized but
unissued common stock as of December 31, 1997, to be awarded as stock
bonuses to employees, not including Dr. Moe. Stock bonuses may be
awarded, as an incentive to contribute to the success of the Company, at
the discretion of a stock bonus committee, consisting of not less than two
directors, from a list of recommendations submitted periodically by the
President. The plan may be amended, modified, suspended or withdrawn at
any time by the Board of Directors. There were no shares awarded during
the periods covered by the Summary Compensation Table.
(7) No other compensation
(8) Compensation Pursuant to Plans
Dr. Moe, for the year 1998, will receive an annual salary of $69,700
payable in substantially equal monthly installments. Dr. Moe will also
receive additional compensation equal to two percent of the Company's
first $100,000 pre-tax net profits, plus four percent of pre-tax profits
from $100,000 to $200,000 plus six percent of the pre-tax profits in
excess of $200,000.
Compensation of Directors
The Company pays its non-employee director $100 per Directors' Meeting
attended. It is anticipated that no more than twelve meetings will occur
each year.
Employment Contracts and Termination of Employment and Change-In Control
Arrangements
The Company does not have any written employment contracts with respect
to any of its executive officers. The Company has no compensatory plan
or arrangement that results or will result from the resignation,
retirement, or any other termination of an executive officer's employment
with the Company or from a change-in-control of the Company or a change
in an executive officer's responsibilities following a change-in-control.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
All persons known by the Registrant to own beneficially more than 5% of any
class of the Company's outstanding stock on February 28, 1998, are listed
below:
Percent
Name & Address of Amount and Nature of of
Title of Class Beneficial Owners Beneficial Ownership Class (w)
Common Stock Maynard L. Moe 703,650 (x) 19.2
No Par Value 2309 South Jackson
Denver, CO 80210
(w) On February 28, 1998, there were 3,671,304 shares of common stock
issued and outstanding.
(x) Includes 159,650 shares owned of record by Carol M. Moe, wife of
Maynard L. Moe.
<PAGE>
(b) Security Ownership of Management
The following table sets forth the number of shares owned beneficially on
February 28, 1998, by each Director and by all Officers and Directors as a
group. Information as to the beneficial ownership is based upon statements
furnished to the Company by such persons.
Percent
Name & Address of Amount and Nature of of
Title of Class Beneficial Owners Beneficial Ownership Class (w)
Common Stock Maynard L. Moe 703,650 (x) 19.2
2309 South Jackson
Denver, CO 80210
Theodore A. Hedman 148,300 (y) 4.0
5445 South Camargo Road
Littleton, CO 80123
Edmund Barbour 40,000 1.1
2765 S. Golden Way
Denver, CO 80227
Executive Officers 891,950 29.2
and Directors as a
group
(w) On February 28, 1998, there were 3,671,304 shares of common
stock issued and outstanding.
(x) Includes 159,650 shares owned of record by Carol M. Moe, wife
of Maynard L. Moe.
(y) Includes 35,800 shares owned of record by Charlotte Hedman,
wife of Theodore A. Hedman.
(c) Changes in Control
The Company knows of no contractual arrangements which may at a
subsequent date result in a change of control of the Company.
ITEM 12. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
None involving more than $60,000.
(b) Parents of Small Business Issuer
None.
(c) Transactions with Promoters
None.
<PAGE>
ITEM 13. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Financial Statements
1. The following financial statements of Dencor Energy Cost Controls
are included in Part II, Item 7:
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 9
Balance Sheet - December 31, 1997 . . . . . . . . . . . . . . . . . . .10
Statements of Operations - years ended
December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . .11
Statements of Shareholders' Equity (Deficit) - years ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . .12
Statements of Cash Flows - years ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . .13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . .15
2. Financial Statement Schedules
All schedules are omitted because they are not applicable or not
required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
3. Articles of Incorporation and By-Laws are incorporated by
reference to Exhibit No. 1 of Form 10 filed May 5, 1980.
(b) Reports On Form 8-K
There were no reports on Form 8-K for the three months ended December
31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Dencor Energy Cost Controls, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DENCOR ENERGY COST CONTROLS, INC.
by: MAYNARD L. MOE
President
Date: March 27, 1998
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:
March 27, 1998 THEODORE A. HEDMAN
Date Secretary/Director/Vice President
March 27, 1998 EDMUND BARBOUR
Date Treasurer/Director
March 27, 1998 MAYNARD L. MOE
Date Director/Principal Executive Officer
<TABLE> <S> <C>
<S><C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,300
<SECURITIES> 0
<RECEIVABLES> 53,700
<ALLOWANCES> 16,100
<INVENTORY> 149,700
<CURRENT-ASSETS> 201,700
<PP&E> 213,300
<DEPRECIATION> 213,300
<TOTAL-ASSETS> 201,700
<CURRENT-LIABILITIES> 287,200
<BONDS> 0
<COMMON> 1,147,600
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 201,700
<SALES> 437,700
<TOTAL-REVENUES> 444,500
<CGS> 231,300
<TOTAL-COSTS> 518,700
<OTHER-EXPENSES> 261,100
<LOSS-PROVISION> 5,300
<INTEREST-EXPENSE> 21,000
<INCOME-PRETAX> (74,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<NET-INCOME> (74,200)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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