U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 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: 0-9358
TYREX OIL COMPANY
(Exact Name of Registrant as specified in its charter)
Wyoming 83-0245581
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
777 North Overland Trail, Ste. 101
P.O. Box 2459
Casper, Wyoming 82601
(Address of principal executive offices) (Zip Code)
(307) 234-4260
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (l) 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
---- ---
At October 31, 1997, 39,293,424 shares of the Registrant's $.01 par value
common stock were outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Attached.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
With the merger of Tyrex and 3Si, the Company believes it has the financial
resources to meet the Company's financial needs for its operations during the
next fiscal year. As of September 30, 1997, the Company had working capital of
approximately $1,748,000, including cash reserved for the self-tender offer
discussed below.
On October 27, 1997, the Company commenced its self-tender offer for up to
6,000,000 shares of its common stock (exclusive of shares issued in the 3Si
merger) at a price of $0.30 per share. The offer is being made pursuant to a
Statement filed under Section 13e of the Securities Exchange Act of 1934 and
Rule 13e-4 adopted thereunder. The completion of the self-tender offer is
expected to occur in December 1997 and will have a negative impact on the
Company's working capital, although the Company cannot determine the ultimate
impact at this time.
As of September 30, 1997, the Company had replaced its note payable with a bank
with an accounts receivable line of credit facility with another financial
institution. The new revolving line of credit is at the prime rate of interest
and permits the Company to borrow up to $2 million collateralized by the
Company's accounts receivable computed under the terms of the agreement. The
line is secured by substantially all of the assets of the Company.
The Company also anticipates undertaking either a private or public offering to
raise new equity capital in the near future. Although no such arrangement
exists currently, any issuance of additional securities may have a dilutive
effect to the existing shareholders of the Company. There is also no assurance
that the Company will be able to raise additional equity capital that it may
require to fully implement its business plan.
Results of Operations
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
Overview
The Company realized net earnings from operations of $26,112 during the quarter
ended September 30, 1997. The net earnings is created by 3Si's success in
generating sales of approximately $7.3 million for the quarter, primarily in
product sales as discussed further below. The Company also continues to invest
in the Internet security business it commenced last July, 1996. Included in
earnings from operations for the quarter is a loss by 3Si's Internet security
business of approximately $79,000. This loss is attributable to the startup
nature of the business whereby revenues generated by the Internet security
division have not yet covered expenses.
Comparative Analysis
Sales were approximately $7,302,000 during the quarter ended September 30, 1997.
Total sales were up from the same period in the previous year by approximately
$2,933,000 or 67.1%. This change is primarily the result of the Company's
success in increasing product sales during the quarter and the United States
Postal Service ("USPS") sub-contract. Product sales increased
2
<PAGE>
approximately $2,119,000, or 66.2%. This increase is directly attributable to
sales to government agencies which accounted for approximately $1,704,000 of the
increase from the same quarter last year. The Company's first fiscal quarter is
generally the last fiscal quarter for government agencies. The USPS sub-
contract sales for the first quarter of 1997 and 1996 were approximately
$1,253,000 and $645,000, respectively, as employees on the contract increased
from 41 in September 1996 to 80 in September 1997.
The Company's gross margin remained relatively constant overall between quarters
only changing from 30.7% of sales in 1996 to 30.4% in 1997 due to the USPS Sub-
Contract creating higher, consulting based margins (i.e. the
compensation related to the delivery of the consulting sales is included in
selling and administrative expenses versus cost of goods sold) offsetting lower
product sales margins. Gross margins on product sales declined from 14.9% in
1996 to 9.9% in 1997 due to the competitive nature of selling to the government
agencies discussed above. The Company also experienced a favorable impact on
its gross margins due to the elimination of the royalty payment to 3Si's former
stockholders. As part of the merger with Tyrex, Tyrex paid $625,000 to satisfy
the License and Royalty agreement with 3Si's former stockholders. This payment
has been capitalized as an intangible asset and is being amortized using the
straight-line method over 20 years.
Selling and administrative expenses increased approximately $851,000, or 63.4%
due primarily to the addition of the labor costs associated with the USPS sub-
contract. During the first quarter of fiscal 1997, the Company incurred
additional labor costs of approximately $477,000 relative to the USPS sub-
contract. Included in the increased selling and administrative expenses for the
quarter ended September 30, 1997 versus 1996 are also approximately $113,000 of
increased expenses related to the Internet security business. The remaining
increase in selling and administrative expenses of approximately $261,000
relates to increased commissions paid during the quarter on increased gross
margin derived.
At September 30, 1997, the Company had 141 employees, including 80 servicing the
USPS sub-contract in Raleigh, NC and 2 in Wyoming versus having had 97 in total
at September 30, 1996 including 41 servicing the USPS sub-contract.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
Part II - OTHER INFORMATION
Item 5. Other Information
On October 27, 1997, the Company commenced its self-tender offer for up to
6,000,000 shares of its common stock (exclusive of shares issued in the 3Si
merger) at a price of $0.30 per share. The offer is being made pursuant to a
Statement filed under Section 13e of the Securities Exchange Act of 1934 and
Rule 13e-4 adopted thereunder.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) A Form 8-K was not required to be filed in the period covered by this
report.
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SIGNATURES
Pursuant to the requirements 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.
Tyrex Oil Company
(Registrant)
Date: November 12, 1997 By: /s/ Tom N. Richardson
-----------------------------------
Tom N. Richardson, President and Chief
Executive and Financial Officer and
Director
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Tyrex Oil Company
Index to Financial Statements
Consolidated Balance Sheets, at September 30, 1997(Unaudited)
and June 30, 1997 . .. . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Operations for the quarter ended
September 30, 1997 and 1996 (Unaudited) . . . . . . . . . . . . . . F-2
Consolidated Statements of Cash Flows for the quarter ended
September 30, 1997 and 1996 (Unaudited) . . . . . . . . . . . . . . F-3
Notes to Consolidated Interim Financial Statements(Unaudited). . . . . F-4
5
<PAGE>
Item 1
CONSOLIDATED FINANCIAL STATEMENTS
TYREX OIL COMPANY
September 30, 1997
<PAGE>
<TABLE>
Tyrex Oil Company
Consolidated Balance Sheets
September 30, 1997 (Unaudited) and
June 30, 1997
<CAPTION>
September
ASSETS 30,1997 June 30,
(Unaudited) 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (note 2) $2,113,000 2,219,145
Accounts receivable - trade 3,593,101 3,334,430
Inventory 342,481 643,474
Other current assets 82,447 61,102
Total current assets 6,131,029 6,258,151
PROPERTY AND EQUIPMENT, AT COST
Computer systems 427,843 358,438
Furniture and fixtures 228,425 228,480
Leasehold improvements 77,888 73,082
Total property and equipment 734,156 660,000
Less accumulated depreciation and
amortization 324,198 297,258
Net property and equipment 409,957 362,742
OTHER ASSETS
Deposits 23,034 20,534
Other 614,583 622,396
Total other assets 637,617 642,930
Total assets $7,178,604 7,263,823
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit (note 1) $ 795,856 ---
Notes payable (note 1) 203,352 1,264,271
Current portion of capital lease 23,359 22,734
Accounts payable - trade 2,812,395 2,774,908
Customer deposits 76,624 120,498
Accrued liabilities 471,071 308,338
Total current liabilities 4,382,658 4,490,749
LONG-TERM DEBT 58,503 64,502
STOCKHOLDERS' EQUITY (note 2)
Common stock - authorized 50,000,000
shares of $.01 par value; issued
and outstanding 39,293,424 shares 392,934 392,934
Additional paid in capital 2,306,625 2,322,902
Retained earnings (deficit) 43,871 (1,277 )
Treasury stock, at cost, 45,000
shares (5,987 ) (5,987 )
Total stockholders' equity 2,737,443 2,708,572
Total liabilities and
stockholders' equity $7,178,604 7,263,823
<FN>
See accompanying notes to interim consolidated financial statements.
</TABLE>
F-1
<PAGE>
<TABLE>
Tyrex Oil Company
Consolidated Statements of Operations
For the Quarters Ended September 30, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Product sales $5,316,431 3,197,287
Consulting and other service revenue 1,985,211 1,171,132
Net sales 7,301,642 4,368,419
Cost of products sold 4,787,522 2,783,038
Costs of contract labor 294,955 176,086
Royalty expense --- 64,668
Total cost of sales 5,082,477 3,023,792
Gross profit 2,219,165 1,344,627
Selling and administrative expenses 2,193,054 1,342,494
Earnings from operations 26,112 2,132
Other income (expense):
Interest income 41,199 3,570
Interest expense (26,735 ) (25,344 )
Miscellaneous income 4,573 3,044
Total other income (expense) 19,036 (18,729 )
Earnings (loss) before income taxes 45,148 (16,597 )
Income taxes (Note 3) --- ---
Net earnings (loss) $ 45,148 (16,597 )
Earnings (loss) per common share $ 0.00 $ (55.33 )
Weighted average shares outstanding
(note 4) 39,293,424 300
<FN>
See accompanying notes to interim consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
Tyrex Oil Company
Consolidated Statements of Cash Flows
For the Quarters Ended September 30, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Operating activities:
Net earnings (loss) $ 45,148 (16,597 )
Reconciling adjustments:
Depreciation and amortization 34,753 23,902
Change in operating assets and
liabilities:
Accounts receivable (258,671 ) (52,210 )
Inventory 300,993 8,241
Other assets (23,845 ) (38,054 )
Accounts payable 37,487 552,412
Other liabilities 118,859 (98,525 )
Total adjustments 174,824 371,865
Net cash provided by operating
activities 254,724 379,170
Investing activities:
Purchases of equipment (74,156 ) (23,537 )
Merger costs (16,277 ) ---
Net cash used in investing
activities (90,433 ) (23,537 )
Financing activities:
Revolving line of credit, net 795,856 (300,000 )
Payments on notes payable (1,060,919 ) (136,410 )
Payments on capital lease (5,374 ) (3,277 )
Dividends paid, prior to merger --- (30,376 )
Net cash used by financing
activities (270,437 ) (470,063 )
Net change in cash and cash equivalents (106,145 ) (114,430 )
Cash and cash equivalents, beginning 2,219,145 168,676
Cash and cash equivalents, ending $2,113,000 54,247
Supplemental disclosures of cash flow
information:
Interest paid $ 35,171 26,576
<FN>
See accompanying notes to interim consolidated financial statements.
</TABLE>
F-3
<PAGE>
Tyrex Oil Company
Notes to Interim Consolidated Financial Statements
(Unaudited)
The unaudited historical interim consolidated financial statements
reflect, in the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation. The accounting policies
followed by the Company are set forth in Note 1 to the Company's financial
statements in the Company's report on Form 10-K.
Operating results for the quarter ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1998.
Presentation
- ------------
On May 28, 1997, Tyrex Oil Company (Tyrex) acquired 100% of the common stock of
Kimbrough Computer Sales, Inc. d/b/a 3Si, Inc. (3Si) in a reverse merger
accounted for as a purchase. Under the terms of the merger, 3Si is a wholly
owned subsidiary of Tyrex. The merger has been accounted for financial
statement purposes as a purchase of Tyrex by 3Si, since the merger resulted in
72% of the outstanding stock of Tyrex being held by the 3Si stockholders.
On May 30, 1997, Tyrex sold all of its oil and gas properties. As such, the
operations of Tyrex during the quarter ended September 30, 1997 include only a
limited amount of operating expenses and interest income. Tyrex's primary asset
is its ownership of 3Si.
The financial statements for the quarter ended September 30, 1997 contain the
unaudited results of operations and financial position of 3Si and Tyrex on a
consolidated basis. All intercompany balances and transactions have been
eliminated in the consolidated financial statements. The financial statements
for the quarter ended September 30, 1996 include the results of operations for
3Si only.
Note 1 - Revolving Line of Credit
- ---------------------------------
On September 30, 1997, the Company replaced its note payable with a bank with an
accounts receivable line of credit facility with another financial institution.
The new revolving line of credit is at the prime rate of interest and permits
the Company to borrow up to $2 million collateralized by accounts receivable
computed under the terms of the agreement. The line is secured by substantially
all of the assets of the Company.
Note 2 - Self-Tender
- --------------------
On October 27, 1997, the Company commenced its self-tender offer for up to
6,000,000 shares of its common stock (exclusive of shares issued in the 3Si
merger) at a price of $0.30 per share. The offer is being made pursuant to a
Statement filed under Section 13e of the Securities Exchange Act of 1934 and
Rule 13e-4 adopted thereunder.
Note 3 - Income Taxes
- ---------------------
At September 30, 1997, the Company has net operating loss carryforwards
sufficient to offset any tax liability arising during the quarter. Prior to the
merger, 3Si was organized as an S Corporation; therefore, all earnings were
passed through to the 3Si stockholders and taxed on their individual tax
returns.
F-4
<PAGE>
Tyrex Oil Company
Notes to Interim Consolidated Financial Statements, Continued
Note 4 - Earnings Per Share
- ---------------------------
Earnings per share for the quarter ended September 30, 1997 is computed on the
basis of the weighted average number of common stock shares only, as shares
subject to warrants and stock options are at exercise prices greater than the
quarter's average market price. The weighted average number of shares for the
quarter ended September 30, 1996 are calculated using the 300 outstanding shares
of 3Si only.
F-5
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 2,113,000
<SECURITIES> 0
<RECEIVABLES> 3,631,660
<ALLOWANCES> 38,559
<INVENTORY> 342,481
<CURRENT-ASSETS> 6,131,029
<PP&E> 734,156
<DEPRECIATION> 324,198
<TOTAL-ASSETS> 7,178,604
<CURRENT-LIABILITIES> 4,382,658
<BONDS> 0
0
0
<COMMON> 392,934
<OTHER-SE> 2,344,509
<TOTAL-LIABILITY-AND-EQUITY> 7,178,604
<SALES> 5,316,431
<TOTAL-REVENUES> 7,301,642
<CGS> 4,787,522
<TOTAL-COSTS> 5,082,477
<OTHER-EXPENSES> 2,117,282
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 26,735
<INCOME-PRETAX> 45,148
<INCOME-TAX> 0
<INCOME-CONTINUING> 45,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,148
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
