SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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, 1999 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. $254,000
As of February 28, 2000 there were 6,549,804 common shares outstanding and the
aggregate market value of the common shares (based upon the average of the bid
price ($0.225) and the asked price ($0.334) reported by brokers) held by
non-affiliates was approximately $1,149,900.
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.
(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 monitoring energy and 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 31% of total Company sales during 1999.
(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 computers using the windows operating system.
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 19% of total Company sales during 1999.
(iii) Special Utility Products
During 1999, the Company introduced equipment to monitor and report power
outages. The Company has developed a series of products used to control water
heaters, space heaters, and air conditioners for specific utility
applications. Sales of special utility products increased to 50% of total
Company sales in 1999 from 3% in the prior year. 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 that usually approximate or exceed the lease
payments.
(3) Status of any Publicly Announced New Products or Services
During 1998 the Company began the development of equipment to monitor and
report power outages. This equipment entered production during the second
quarter of 1999.
(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 that 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 that may be priced
slightly higher than the competition.
(5) Sources and Availability of Raw Materials
The Company has approximately 17 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 Advanced Circuits, B-Line, Deltrol, and
Future Electronics. Its suppliers' productive capacities are believed to be
sufficient to meet any rapid delivery requirements of customers or to any
continuous allotment of goods.
(6) Major Customers
During 1999, two major customers accounted for 39% of the Company's net sales.
These customers are not affiliated with the Company. The loss of either of
these customers may adversely affect the Company's business.
As of February 28, 2000, the Company had a backlog of orders totaling $3,900
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, 1999 was $17,400.
(7) Patents
Most of the Company's demand control systems are not protected by 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, 1999 and 1998 the Company expended
$95,200 and $81,200, respectively, on Company sponsored research and
development activities. The Company plans to continue research and
development activities during 2000.
(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, 2000, the Company had 4 full-time employees and 1 part-time
employee. 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 $2,921/month.
Management considers these facilities to be adequate for its requirements for
the immediate future. This lease expires in April 2002 and has a 6-month
cancellation clause.
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, including any 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 on the
OTC Bulletin Board. 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
03/31/99 $.05 $.05 03/31/98 $.03 $.05
06/30/99 .05 .05 06/30/98 .05 .06
09/30/99 .05 .05 09/30/98 .03 .06
12/31/99 .01 .01 12/31/98 .03 .06
The high and low bid quotations on March 7, 2000 were $.225 and $.225,
respectively.
(b) Holders. The approximate number of holders of record of the Registrant's
Common Stock as of February 28, 2000 was 430.
(c) The Registrant has paid no dividends from inception to date and does not
currently intend to do so.
ITEM 6. Management's Discussion and Analysis
(a) Selected Financial Data
Year Ended December 31
1999 1998 1997 1996 1995
Net Sales $247,700 $318,200 $437,700 $388,700 $567,900
Net Income (Loss) (235,600) (153,100) (74,200) (74.400) 11,300
Net Income (Loss) Per
Common Share (.05) (.03) (.02) (.02) *
Weighted Average
Common Shares
Outstanding 4,854,231 4,296,674 3,671,304 3,671,304 3,671,304
* Less than $.01 per share
AT YEAR END
Year Ended December 31
1999 1998 1997 1996 1995
Total Assets $167,200 $172,500 $201,700 $217,400 $275,800
Working Capital (Deficiency) (439,900) (222,900) (102,600) (16,700) 50,600
Shareholders' Equity (Deficit)(431,300) (210,300) (85,500) (11,300) 63,100
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, 1999 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, 1999 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
Total Assets Ratio. Working capital is current assets less current
liabilities.
1999 1998 1997
Current Ratio .26 .44 .64
Sales to Total Assets 1.48 1.72 2.17
The major factors affecting these ratios were the net losses for 1999, 1998
and 1997. 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 $121,400 18.2% $143,300 $125,800 18.2%
Others 5,000 18.0% 5,000 5,000 18.0%
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 2000. 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 stockholder 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.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities was issued. This statement is effective for fiscal years
beginning after June 15, 2000. Currently, the Company does not have any
derivative financial instruments and does not participate in hedging
activities. Therefore, management believes that SFAS No. 133 will not have an
impact on its financial position or results of operations.
YEAR 2000
The Company did not experience any Year 2000 problems with its accounting
system, its products, or production processes. The Company has no information
that indicates key vendors, service providers, or any third parties, may be
unable to sell or purchase from the Company because of any Year 2000
compliance problems they may have.
(c) Results of Operations
The Company's sales in 1999 of $247,200 were 22% lower than the net sales of
$318,200 in 1998. Approximately 60% of the sales decrease was due to dealer
sales decreases. Dealers who went out of business were the privary cause of
the decrease in dealer rates. A decrease in distributor sales also resulted
in 30% of the sales decrease. The net loss for 1999 was $235,600 compared to
net loss of $153,100 in the prior year.
Gross Margins. The gross margin was $78,200, 32% of sales, for 1999
compared to $138,300, 43% of sales for 1998. The decrease in the gross
margin was due to decreased production efficiency caused by decreased sales
volume.
Selling Expenses. Selling expenses were $14,400, 5.8% of sales, in 1999
compared to $20,400, 6.4% of sales, in 1998.
General and Administrative Expense. General and administrative expenses were
$172,200, 69.5% of sales, in 1999 compared to $156,300, 49.1% of sales, in
1998. The increase was due to outside advisor expenses as well as an increase
in rent, business taxes and fees.
Research and Development. Research and development expenses increased 17.2%
to $95,200 in 1999 compared to $81,200 in 1998. The increase was 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 2000 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 2000. The Company may also seek strategic acquisitions or mergers. In
January, 2000 the Company completed a private placement of 800,000 shares of
common stock and received $16,000.
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, 1999, and the related statements of
operations, shareholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 1999. 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, 1999, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1999, 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 $235,600 net loss for the year
ended December 31, 1999, and a shareholders' deficit and a working capital
deficiency of $431,300 and $439,900 respectively, as of December 31, 1999.
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,P.C.
Denver, Colorado
February 29, 2000
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current assets:
Cash $ 500
Accounts receivable, net of allowance
for doubtful accounts of $5,700 (Note 9) 25,100
Inventories (Notes 4 and 5) 127,900
Prepaids and other 5,100
Total current assets 158,600
Furniture and equipment 213,300
Less accumulated depreciation 213,300
Long-term receivables, net of allowance
for doubtful receivables of $11,400 (Note 3) 8,600
$ 167,200
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable - shareholders (Note 5) $ 121,400
Notes Payable - other (Note 5) 5,000
Accounts payable 65,200
Accrued compensation and benefits 272,100
Accrued interest and other - shareholders (Note 5) 130,600
Warranty reserve 3,200
Other 1,000
Total liabilities (all current) 598,500
Commitments (Note 7)
Shareholders' deficit (Note 8):
Preferred Stock, no par value, authorized 5,000,000 shares;
none issued and outstanding
Common Stock, no par value, authorized 25,000,000 shares;
issued and outstanding, 5,749,804 shares 1,190,600
Accumulated deficit (1,621,900)
(431,300)
$ 167,200
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,1999 AND 1998
1999 1998
Revenues:
Net sales $ 247,700 $ 318,200
Interest and other 6,300 8,400
254,000 326,600
Costs and expenses:
Cost of products sold 169,500 179,900
Selling 14,400 20,400
General and administrative 172,200 156,300
Research and development 95,200 81,200
Provision for doubtful
receivables 4,200 16,100
Interest, substantially to
related parties (Note 5) 34,100 25,800
489,600 479,700
Net loss $ (235,600) $ (153,100)
Loss per common share $ (.05) $ (.03)
Weighted average common shares
outstanding 4,858,231 4,296,674
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31,1999 AND 1998
Common Stock
Accumulated Shareholders'
Shares Amount deficit equity (deficit)
Balances, January 1, 1998 3,671,304 $1,147,500 ($1,233,200) ($85,700)
Issuance of common stock
in exchange for debt 1,000,000 25,000 25,000
Issuance of common stock in
private placement 132,500 3,300 3,300
Net loss (153,100) (153,100)
Balances, December 31, 1998 4,803,804 $1,175,800 $(1,386,300) $ (210,500)
Issuance of common stock
for services 750,000 11,700 11,700
Issuance of common stock
for compensation 196,000 3,100 3,100
Net loss (235,600) (235,600)
Balances, December 31, 1999 5,749,804 $1,190,600 $(1,621,900) $ (431,300)
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Cash flows from operating activities:
Net loss $(235,600) $ (153,100)
Adjustments to reconcile net loss
to net cash used in operating activities:
Provision for doubtful receivables (4,100) 16,100
Non-cash expense incurred upon issuance 14,800
of common stock
Changes in operating assets and
liabilities:
Accounts receivable (1,000) (13,600)
Inventories 10,200 11,600
Prepaids and other 1,000
Long term receivables 4,000 2,500
Accounts payable 28,600 (15,000)
Accrued compensation and benefits 138,500 97,100
Accrued interest and other - shareholders 32,700 25,700
Other liabilities (4,400)
Total adjustments 224,700 120,000
Net cash used in
operating activities (10,900) (33,100)
Cash flows from financing activities:
Proceeds from notes payable - shareholders 13,100 30,800
Proceeds from notes payable - others 20,000 5,000
Principle payments on notes payable - shareholders (10,000) (6,000)
Principle payments on notes payable - Others (20,000)
Proceeds from private placement of common stock 3,300
Net cash provided by financing activities 3,100 33,100
Net decrease in cash (7,800) 0
Cash, beginning 8,300 8,300
Cash, ending $ 500 $ 8,300
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ 1,400 $ 300
See notes to financial statements.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,1999 AND 1998
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. As of December 31, 1999, all furniture and
equipment has been fully depreciated.
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.
Loss per share:
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Diluted loss per share
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. Stock options are not considered in the calculation,
as the impact of the potential common shares would be to decrease loss per
share. Therefore, diluted loss per share is equivalent to basic loss per
share.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1999 AND 1998
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.
Comprehensive income:
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income" establishes requirements for disclosure of
comprehensive income which includes certain items previously not included in
the statements of operations, including minimum pension liability adjustments
and foreign currency translation adjustments, among others. During the years
ended December 31, 1999 and 1998, the Company had no items of comprehensive
income.
Recently issued accounting standards:
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement is effective for fiscal
years beginning after June 15, 2000. Currently, the Company does not have
any derivative financial instruments and does not participate in hedging
activities. Therefore, management believes that SFAS No. 133 will not have
an impact on its financial position or results of operations.
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) defines a fair-value-based method of
accounting for stock-based employee compensation plans and transactions in
which an entity issues its equity instruments to acquire goods or services
from non-employees, and encourages but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
SAFS No. 123 allows companies to choose whether to accountfor employee stock-
based compensation on a fair value method, or to account for such
compensation under intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). The Company has chosen to account for employee stock-based
compensation using APB 25.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1999 AND 1998
2. Going concern, results of operations, and management's plans:
The Company's financial statements for the year ended December 31, 1999
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, 1999, the Company
reported a $235,600 net loss and a shareholders' deficit and a working capital
deficiency of $439,900 and $444,900, respectively, at December 31, 1999. 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.
As described In Note 8, in January 2000, the Company sold 800,000 shares
of common stock for $16,000. Additionally the Company's 2000 operating plan
includes achieving increased sales goals and maintaining its cost reduction
program, which primarily includes a reduction in labor costs. The Company may
also seek strategic acquisitions or mergers. Management believes that actions
presently being taken under its 2000 operating plan will enable the Company to
meet its cash needs in 2000. 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 $6,000 promissory note and other
receivables due on demand from a customer. The promissory note bears interest
at 18% and is unsecured.
4. Inventories:
Inventories at December 31, 1999 consist of:
Finished products $ 8,000
Work in progress - sub-assemblies 34,300
Raw materials - component parts 85,600
$ 127,900
The elements of cost in inventories include materials, labor and
overhead.
5. Notes payable - shareholders and other:
The notes payable to shareholders and other are due on demand, and bear
interest at 12% to 18.25% per year. Notes payable to shareholders and other
of $25,000 are collaterized by the Company's inventory. The remaining notes
payable shareholders are unsecured. The weighted average interest rate
during the years ended December 31, 1999 and 1998 was approximately 18.3%.
Interest expense of approximately $34,100 and $25,500 associated with these
notes payable was charged to operations for the years ended December 31,
1999 and 1998, respectively. In January 2000, the Company issued a note
payable for $3000 to a related party which is due on demand and bears interest
at 18.25%. The note is collaterized by the Company's inventory.
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1999 AND 1998
6. Income taxes:
The components of deferred tax assets as of December 31, 1999 were as follows:
Current deferred tax assets: 1999
Receivables, due to
allowance for doubtful accounts 3,400
Inventories, due to obsolescence reserve
and additional costs inventoried for tax
purposes 20,500
Unpaid Salary expense 43,100
Compensated absences 6,700
Warranty reserve 600
Total current gross deferred tax assets 74,300
Less valuation allowance (74,300)
Net current deferred tax assets $ -
Noncurrent deferred tax assets:
Net operating loss carryforwards 166,300
Other tax credits carryforwards 46,000
Total noncurrent gross deferred tax assets 213,300
Less valuation allowance (213,300)
Net noncurrent deferred tax assets $ -
The net increase during the year in the total valuation allowance was
$1,300. The difference between taxes computed at the statutory federal
tax rate and the effective tax rate is reconciled below:
Years ended December 31,
1999 1998
Income tax benefit computed at
statutory federal tax rate $ 53,900 $ 33,300
Deferred tax benefit not recognized (53,900) (33,300)
Income tax benefit computed at the
effective tax rate $ - $ -
<PAGE>
DENCOR ENERGY COST CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31,1999 AND 1998
6. Income taxes (continued)
At December 31, 1999, 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 2019 as
follows:
Net General
operating business
loss credit
carryforwards carryforwards
2000
2001
2002 151,900
2003
2004
Thereafter 577,000 45,700
$728,900 $ 46,000
7. Commitments:
The Company leases certain equipment under non-cancelable operating
leases that expire in 2004. The Company leases its facility under operating
leases that expire in April 2002 with a 6-month cancellation clause. Future
rentals at December 31, 1999, on the non-cancelable portion of operating
leases for its facility and equipment are approximately $27,000. Future
facility lease rental for the remainder of the Company's 3-year facility
lease is $87,600. Lease rental expense of approximately $38,600 and $41,400
were charged to operations for the years ended December 31, 1999 and 1998,
respectively.
8. Shareholders' equity:
Common stock:
During 1999, the Company issued 196,000 shares of common stock under a
restricted stock bonus plan. The Company also issued 750,000 shares of common
stock to financial advisors for consulting services. The value of the services
rendered was based on the fair market value of the common stock on the date of
the grant. On January 4, 2000 the Company issued 800,000 shares of common
stock in a private placement at $0.02/share.
Stock Options:
For the year ended December 31, 1999, options to purchase 750,000 shares of
common stock at $.02 per share were granted to financial advisors of the
Company. These options are exercisable from December 1999 through December
2002.
Compensation expense, as computed under the Black, Scholes method, consistent
with the guidance of SFAS No. 123, was not material. The Company calculated
the fair value of the options with the following assumptions: dividend yield
at 0%; weighted average expected option term of three years; risk free interest
rate of 6.24%; and 90% volatility for the year ended December 31, 1999.
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 1999, two customers accounted for approximately 28% and 11% of
net sales. During 1998, four customers accounted for approximately 18%, 12%,
11% and 10% of net sales. As of December 31, 1999, 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 31,1999 AND 1998
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.
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, 2000, is furnished with respect
to each Director:
Year First
Elected as
Name of Director Age Director Position with Company
Theodore A. Hedman 61 1988 Director, Vice President,
Treasurer
Secretary, Manager of Engineering
Edmund Barbour 76 1997 Director
Maynard L. Moe 65 1974 Chairman of Board and President
All Directors serve for one-year terms which expire at the annual shareholders
meeting in 2000. For the period ended December 31, 1999, all corporate
officers were also directors.
(b) Identification of Executive Officers
Position
Name of Officer Age (Date Elected To Position)
Theodore A. Hedman 61 Director, Vice Pres., Secretary, Treasurer
Manager of Engineering (March 24, 1988)
Maynard L. Moe 65 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 Company since 1974.
Mr. Hedman has been Manager of Engineering for the Company 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on information furnished to the Company, 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 1999 $64,320 -0- -0- -0- -0- -0- -0-
Chief Execu-
tive Officer, 1998 69,700 -0- -0- -0- -0- -0- -0-
President and
a Director 1997 68,600 -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 except as noted in the
Restricted Stock Bonus Plan below.
(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 had remaining 196,000 shares of the Company's authorized but unissued
common stock as of December 31, 1999, to be awarded as stock bonuses to
employees, not including Dr. Moe. Stock bonuses are 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. During the periods covered by the Summary Compensation Table, the
remaining 196,000 shares of the Company's authorized but unissued common stock
valued at $3,100 was awarded to an employee. No shares remain in the Stock
Bonus Plan.
(7) No other compensation
(8) Compensation Pursuant to Plans
Dr. Moe, for the year 2000, 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, 2000, 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 1,203,650 (x) 18.4
No Par Value 2309 South Jackson
Denver, CO 80210
Theodore A. Hedman 844,300(y) 12.9
5445 South Camargo Road
Littleton, CO 80123
Edmund & Regina Barbour 460,000 7.0
2765 S. Golden Way
Denver, CO 80227
Bruce Glenn Family 350,000 5.3
28456 Clover Lane
Evergreen, CO 80439
Brett P. Guarrero 375,000 5.7
9016 Vance, #205
Westminster, CO 80021
Paul Knight 375,000 5.7
PO Box 3476
Englewood, CO 80155
(w) On February 28, 2000, there were 6,549,804 shares of common stock
issued and outstanding.
(x) Includes 409,650 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.
(b) Security Ownership of Management
The following table sets forth the number of shares owned beneficially on
February 28, 2000, 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 1,203,650 (x) 18.4
2309 South Jackson
Denver, CO 80210
Theodore A. Hedman 844,300 (y) 12.9
5445 South Camargo Road
Littleton, CO 80123
Edmund Barbour 460,000 7.0
2765 S. Golden Way
Denver, CO 80227
Executive Officers 2,507,950 38.3
and Directors as a
group
(w) On February 28, 2000, there were 6,549,804 shares of common
stock issued and outstanding.
(x) Includes 409,650 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.
ITEM 13. Exhibits 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 . . . . . . . . . . . . . . . . . . . . . 8
Balance Sheet - December 31, 1999 . . . . . . . . . . . . . . . . . . . 9
Statements of Operations - years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . .10
Statements of Shareholders' Deficit - years ended
December 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . .11
Statements of Cash Flows - years ended
December 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . .12
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . .13
2. Exhibits
3. Articles of Incorporation and By-Laws are incorporated by
reference to Exhibit No. 1 of Form 10 filed May 5, 1980.
27. Financial Data Schedule
(b) Reports On Form 8-K
There were no reports on Form 8-K for the three months ended December
31, 1999.
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 24, 2000
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 29, 2000 THEODORE A. HEDMAN
Date Director/Vice President /Secretary/Treasurer
March 29, 2000 EDMUND BARBOUR
Date Director
March 29, 2000 MAYNARD L. MOE
Date Director/Principal Executive Officer
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S><C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM-10KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DECEMBER 31, 1999
<PERIOD-END> DECEMBER 31, 1999
<CASH> 500
<SECURITIES> 0
<RECEIVABLES> 33,700
<ALLOWANCES> 17,100
<INVENTORY> 127,900
<CURRENT-ASSETS> 156,600
<PP&E> 213,300
<DEPRECIATION> 213,300
<TOTAL-ASSETS> 167,200
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<BONDS> 0
<COMMON> 1,190,600
0
0
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<TOTAL-LIABILITY-EQUITY> 167,200
<SALES> 247,700
<TOTAL-REVENUES> 254,000
<CGS> 169,500
<TOTAL-COSTS> 489,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,200
<INTEREST-EXPENSE> 34,100
<INCOME-PRETAX> (235,600)
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