SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: JUNE 30, 1996 COMMISSION FILE NO. 0-4076
EXOTECH INCORPORATED
(Exact name of Registrant as Specified in Charter)
State or Jurisdiction of
Incorporation or Organization: DELAWARE
IRS Identification No: 54-0700888
Address of Principal Office: 8502 Dakota Drive
Gaithersburg, MD. 20877
Registrant's Telephone Number: (301) 948-3060
SECURITIES REGISTERED PURSUANT TO
SECTION 12 (b) OF THE EXCHANGE ACT
None
SECURITIES REGISTERED PURSUANT TO
SECTION 12 (g) OF THE ACT
Common Stock par value $0.10 per share.
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes [x] No [ ]
At June 30, 1996, 942,387 shares of Common Stock were outstanding, and the
aggregate market value of the Common Stock of Exotech Inc. held by nonaffiliates
was approximately $56,750.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1. GENERAL DESCRIPTION AND BUSINESS ACTIVITIES
A. General - There have been no changes in the organization of the
Company during the past fiscal year. The Company has been neither a party to,
nor contemplates, any actions of bankruptcy, receivership, or reorganization
during the past or current fiscal years. No material assets were acquired, no
acquisitions or dispositions are anticipated. The basic nature and conduct of
the business is expected to continue as in the past.
B. Financial information about industry segments - In the opinion of
Management, the Company has one industry segment: (1) electro-optics and
electronic instrument systems and related services.
1. Electro-optics products - The Company's principal products are: (1)
a laser bacteria colony counter used in food and drug processing and laboratory
testing environments, (2) a printed circuit board (PCIB) which interfaces the
laser-scanner instrument with many models of the personal computers, (3) a
crystallographic scanner that evaluates the lattice structure orientation of
semiconductor crystals on the basis of surface morphology measurements, (4) a
hand-held four channel-ground truth radiometer used for earth resource studies
in conjunction with the LANDSAT satellite and also independent studies, and (5)
an automated spiral plater that precisely and rapidly dispenses microbial
samples onto rotating agar plates used in laboratories performing bacterial
enumeration work.
These products are currently marketed world-wide. Spiral Biotech, Inc.
is the exclusive representative of products 1, 2 and 5. The others are sold
directly by the Company. They are built for inventory in lots of 25 units, with
two or more lots of the well established products generally being sold in about
one year. It is intended that these products will be updated periodically to
keep them abreast of new technological developments and will remain products of
the Company. In December 1994 the Company accepted a contract from Spiral
Biotech, Inc. to design an automated spiral plater (Autoplate) to replace the
model that was being imported from Holland. In May 1995 a demonstration model of
the instrument was delivered and subsequently the Company received an order for
22 production units. This production was scheduled for the first six months of
fiscal year 1996. A modulation transfer function (MTF) tester, used for quality
control in the manufacture of low light level image intensifier tubes, is not in
regular production but would be manufactured to fill customers' orders. This
instrument was initially produced for the U. S. Army and delivered during fiscal
year 1979. The Company developed an adapter assembly for these test instruments
that updates them to test the latest versions of image intensifier tubes. Over
the past fifteen years the Company has provided support to the U. S. Army and
its contractors in the form of repair maintenance and calibration services. The
contracts for these services were fixed price. There was a government contract
for these services in the past fiscal year and purchase orders for calibration
services in the current fiscal year are being received from government
contractors using five of the MTF tester systems.
The Crystallographic Scanner, developed in fiscal year 1987, redesigned
into a manufacturing model in fiscal year 1988, was put into production in 1989.
The first unit was delivered to the customer in May 1989. An active marketing
effort through correspondence and personal contacts, as well as personal
presentations, is continuing to introduce this product to semiconductor crystal
growers, processors and manufacturers. Additionally, the Company is currently
engaged with the National Institute
2
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of Standards and Technology in a cooperative R&D agreement with the objective to
calibrate the Exotech Scanner method with respect to the Bragg Angle method of
determining crystal axis orientation. Validation of our instrument's capability
vis-a-vis the X-ray methods will overcome a persistent impediment to sales of
Exotech's Scanner to producers of semiconductor wafers. There are well-known
potential customers that show continued interest in the scanner, but must be
convinced of correlation with the traditional X-ray results.
Some of the component parts for the products discussed above are
fabricated to the Company's specifications and design. Other parts are standard
electronic or optical components available off-the-shelf. The availability of
these components is dependent upon several independent manufacturers and
distributors. Delays due to strikes, material availability or scheduling
problems could adversely affect the Company's assembly and delivery schedules. A
few parts have only one source; however, the suppliers are proven, reliable
businesses. The Company does not rely on foreign sources for raw materials,
other than to the extent U. S. manufacturers acquire their supplies overseas. An
energy crisis or fuel shortage would have no more of an adverse effect on the
Company than on other firms requiring lighting, heat and modest amounts of
electric power for offices and shops.
Among its current electro-optical products the Company holds an
exclusive license and foreign patent applications on the Crystallographic
Scanner. There are little or no seasonal variations in the business of this
segment, other than for radiometers which tend to attract greater interest
during the spring and fall seasons.
Working capital is a continuing problem for the Company. There is
currently no working capital financing available through a financial
institution, although producer loans made by Spiral Biotech, Inc. were used to
finance colony counter production in prior fiscal years. The limited
availability of working capital results in occasional cash on delivery orders or
delays in paying suppliers. All products are guaranteed as to parts and
workmanship for a period of six months to one year. The only warranty work
incurred in the past year was repair of two Model 4000 Autoplates and a Model
200 Vacuum Source at nominal cost.
The colony counter, Autoplate, crystallographic scanner and radiometer
products are used principally in the scientific research and high technology
manufacturing communities and therefore customers tend to be concentrated in
these areas of activities.
Sales in July and August 1996 amounted to $70,300, comprising
Autoplates, radiometers, vacuum sources and miscellaneous repair and calibration
services. Backlog in this segment at June 30, 1996 was $279,000.
Business performed for the Government in this segment is on a
fixed-price basis and therefore not subject to renegotiation; however, the
contracts could be terminated for non-delivery or failure to meet
specifications. There are other manufacturers of the products of this segment,
most of them larger and with greater resources available to fund development and
production. Competition is very keen for the available market. The Company
strives to improve its existing products and produce highly reliable
state-of-the-art instruments.
2. General Description of Business - Research and development by the
Company in the past affected four products: (1) bacteria colony counters; (2)
four channel radiometers, (3) data processors for bacteria colony counters and,
(4) Model 500 Crystallographic Scanners. In fiscal year 1992 , the
3
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Company, in collaboration with Spiral Biotech, Inc., engaged in development of
computer controlled, stepper motor actuated automation for bacteria colony
plating and counting instruments. The applications comprise coordinated precise
motions on as many as four axes. The purpose of this work is to enhance the
technological excellence and competitive edge of the next generation of the
Company's products for the microbiological laboratory market. This work,
completed in March, 1992, resulted in a colony counter with automated features,
and a proof-of-concept and demonstration model of a new spiral plater
instrument. Total expenditures for the spiral plater effort amounted to $63,000
of which $20,000 was funded by Spiral Biotech, Inc. The development of the new
plating instrument was completed, and produced by Melvezi-Prolion, a development
and manufacturing firm in Holland.
Following the termination of importing of the instrument from Holland,
the Company, early in 1995, designed a replacement instrument and, concurrent
with development work, began production of 12 units on an order from Spiral
Biotech, Inc. The order was increased to 22 units in November 1995, with the
final unit of this lot shipped in February 1996. A follow-on order for 25
instruments resulted in shipments of 18 more units prior to June 30, 1996.
In the electro-optics segment of the business, autoplates, colony
counters and related equipment sales accounted for 82% of the year's sales, 5%
from the MTF parts, calibration and maintenance; and 13% from miscellaneous
sales and repair work.
For the fiscal year ended June 30, 1996, as has been the case for prior
years, the Company's independent auditors' report has included an explanatory
paragraph, following the the opinion paragraph, describing the existence of a
going concern uncertainty. Management has been advised that the principal cause
of the going concern uncertainty is cash flow shortage which has caused delays
in meeting some current obligations. It is the opinion of management that
progress in resolving cash flow related problems, although elusive in the past
several years, will be re-established in fiscal year 1997 provided that modest
increases in instrument sales, and maintenance and repair work continue and that
ongoing demonstrations and trial applications of the Crystallographic Scanner
result in sales of this product. Strengthening of revenues and stringent
controls of costs are necessary to enable profits from operations to remedy cash
flow problems.
The capital expenditures, earnings and competitive position have not
been affected by compliance with Federal, State or local regulations enacted to
control the discharge of materials into the environment or otherwise relating to
the protection of the environment.
The Company and its subsidiary employ five persons; two are classified
as professional and three as semi-professional. The Company did not conduct
operations in foreign countries.
ITEM 2. PROPERTIES
The Company, and its wholly-owned subsidiary, Exotech Research &
Analysis, Inc. have been in their present facilities at 8502 Dakota Drive,
Gaithersburg, Maryland 20877 since November, 1987. The premises consist of
approximately 4,500 square feet of office space and laboratory facilities.
In November 1995, the Company entered into a three year lease extension
with McShea Management, Inc. of Gaithersburg, Maryland for the presently
occupied facility.
4
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ITEM 3. LEGAL PROCEEDINGS
Neither the company nor its subsidiary are parties to any material
pending legal proceedings nor is any of their property the subject of any
material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the past fiscal year.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
a. Price range of Common Stock
The following table shows the Bid and Ask prices for the Common Stock
in the over-the-counter market for the fiscal years and calendar quarters
indicated, as obtained upon request from stockbrokers in the Washington area.
The quotations represent prices in the over-the counter market between dealers
in securities, do not include retail mark-up, mark-down or commission, and do
not necessarily represent actual transactions. (Transaction data was
insufficient to obtain an average for 1995 and 1996.)
-------------BID AND ASK PRICES--------------
1996 1995
---- ----
FIRST QUARTER Bid, Nominal / Ask, 1/2 Bid, Nominal / Ask, 1/2
SECOND QUARTER Bid, Nominal / Ask, 1/2 Bid, Nominal / Ask, 1/2
THIRD QUARTER Bid, Nominal / Ask, 1/2 Bid, Nominal / Ask, 1/2
FOURTH QUARTER Bid, Nominal / Ask, 1/2 Bid, Nominal / Ask, 1/2
b. Approximate number of Equity Security Holders.
TITLE OF CLASS: Common Stock
APPROXIMATE NUMBER OF SHAREHOLDERS
(As of September 27, 1996:) 620
c. Dividends.
No dividends were declared or paid during the most recent or any prior
fiscal year.
6
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ITEM 6. SELECTED FINANCIAL DATA
Selected Income Statement Data:
-------------FISCAL YEAR------------
1996 1995 1994
---- ---- ----
Net Sales $367,259 $370,102 $437,330
Income before Taxes
& Extraordinary
Credit (152,584) (68,130) (35,448)
Net Income (Loss) (152,584) (68,130) (35,448)
Per Share:
Net Income (Loss) (.16) (.07) (.04)
Selected Balance Sheet Data:
-------------FISCAL YEAR------------
1996 1995 1994
---- ---- ----
Current Assets $563,209 $587,808 $643,836
Current Liabilities 825,952 699,068 688,834
Working Capital (262,743) (111,261) (44,998)
Total Assets 570,541 596,241 654,136
Stockholders' Equity
and Accumulated
Deficit $(255,411) $(102,827) $(34,698)
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS.
Strong competition in a generally weak market for scientific laboratory
and field instruments was again characteristic of the Company's fiscal year
ended June 30, 1996. The depressed level of sales experienced in the prior three
years eased somewhat with sales of a new automated plater instrument in the
second half of the period. Revenues of $367,259 showed a decline of 1.0% from
the prior year. This level of income was achieved despite serious difficulties
and delays in delivering the new instrument, by sales in repairs, parts,
maintenance and calibration services for a broad range of laboratory
instruments. Sales of platers, laser bacterial colony counters and related
accessory equipment increased by $193,500, however, there were no sales of
radiometers or Crystallographic Scanners. Service and parts sales for Modulation
Transfer Function Testers increased by $8,100, but service and maintenance sales
for the broad range of laboratory instruments was down by $164,400 compared to
the prior year.
The large net loss for this fiscal year reflects write-off of $129,000
in one-time development costs incurred in putting a new instrument into
production. Management's plan was to complete the electronic system design and
development in-house and contract the mechanical final design and development to
a computer-assisted-design service with an established record in machining and
sheet metal fabrication shops. After two months of delays and finding that the
mechanical design was unsatisfactory, this contract was terminated and under the
pressure of schedule requirements, this phase of development was taken in-house.
The result was that parts and fabrications had to be produced from preliminary
drawings prepared by the company's very small staff. Necessary refinements were
made during the course of building the early production units. The costs
associated with this ad hoc procedure were some five times greater than expected
under the original plan.
Backlog at June 30, 1996, was $279,000 compared to $81,000 one year
earlier. Sales in July and August amounted to $70,300, about $34,300 more than
in the comparable period in 1995. In the opinion of Management, recent revisions
in marketing strategy will rejuvenate sales of laser scanner instruments when
they are offered with a reliable automated spiral plater. Despite the financial
limitations that have impeded marketing, it is believed that recent
collaborative studies and demonstrations of capabilities directed at potential
customers have improved opportunities for sales of Crystallographic Scanner
instruments.
Over the past three fiscal years, as in prior years, the independent
accountants' report has included an explanatory paragraph, following the the
opinion paragraph, describing the existence of a going concern uncertainty. The
accountants have advised Management that the principal cause for the going
concern uncertainty is cash flow shortages which have caused delays in meeting
current obligations. In the opinion of Management, the past three years of
seriously depressed markets for the Company's products caused substantial
impediments to overcoming the qualification stated by the accountants. Continued
stringent control of costs and cash outlays will enable the Company to sustain
high quality and timely upgrades of its products while nurturing improved
results from marketing efforts in a very competitive environment. The Company's
management and employees continue to be committed to reestablishing progress
toward our goal of profitability.
8
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Linton, Shafer & Company, P.A.
Certified Public Accountants
6 West Second Street
Frederick, MD 21701
301-663-5122
Principals: Edmond B. Gregory III, CPA, CBA
Kevin R. Hessler, CPA
Donald C. Linton, CPA, CFP
Joseph M. McCathran, CPA
Ronald W. Shafer, CPA
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Exotech, Incorporated
We have audited the accompanying consolidated financial statements and
related schedules of Exotech, Incorporated and Subsidiary included on pages 11
through 20 of the annual report on Form 10- K of Exotech, Incorporated and
Subsidiary as of June 30, 1996 and 1995 and for the years ended June 30, 1996,
1995 and 1994. These financial statements and related schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and related schedules 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 and per share data
and ratios 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 consolidated financial position of
Exotech, Incorporated and Subsidiary as of June 30, 1996 and 1995 and the
results of their operations and their cash flows for the years ended June 30,
1996, 1995 and 1994, in conformity with generally accepted accounting
principles.
9
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The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $152,584 during the year ended
June 30, 1996. This fact, among others discussed in Note 1 to the financial
statements, raises substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Linton, Shafer & Company, P.A.
September 20, 1996
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EXOTECH INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JUNE 30
The following consolidated statements of operations of the Company and
its subsidiary have been audited by Linton, Shafer & Co., P.A., independent
certified public accountants, for the three years presented as set forth in
their report included in this Annual Report. Reference is made to the report of
Linton, Shafer & Co., P.A. in which the opinion is subject to the realization of
the carrying value of certain assets and fulfillment of lease obligations.
Reference is made to Note 1 of the Notes to the Consolidated Financial
Statements for a description of operations of the Company and to Note 2 for a
description of the principal accounting policies followed by the Company.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
REVENUES
Contract Sales $367,259 $370,102 $437,330
COST OF SALES
Direct Cost and Overhead 364,448 363,721 441,390
General and Administrative 1,178 4,324 4,752
----- ----- -----
TOTAL COST OF SALES 365,626 368,045 446,142
------- ------- -------
OPERATING PROFIT (LOSS) 1,633 2,057 (8,812)
- -----------------------
OTHER REVENUES
(EXPENSES)
Miscellaneous 4,600 (43,365) 1,116
R&D Costs (129,000) -- --
Interest (29,817) (26,822) (27,752)
-------- -------- --------
NET LOSS BEFORE TAXES (152,584) (68,130) (35,448)
- ---------------------
INCOME TAXES -- -- --
-------- -------- --------
NET LOSS $(152,584) $(68,130) $(35,448)
- -------- ========== ========= =========
Loss per
Common Share (.16) (.07) (.04)
Weighted average number
of common shares
outstanding 942,387 942,387 942,387
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
EXOTECH INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
CURRENT ASSETS
Cash $105 $32
Accounts Receivable
(Note 2) Billed 11,073 54,300
Less: Allowance for Doubtful Account -- (43,368)
Inventories, at lower of
average cost or market
(Note 2) 551,687 575,450
Prepaid Expenses and Advances 344 1,394
------ -------
CURRENT ASSETS 563,209 587,808
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 2)
Laboratory Equipment 160,980 160,980
Office Furniture & Equipment 70,550 70,550
------ --------
231,530 231,530
Less accumulated
depreciation and
amortization (231,119) (230,946)
--------- ---------
Total Property, Plant and Equipment - Net 411 584
OTHER ASSETS
Miscellaneous 6,921 7,849
----- -----
TOTAL ASSETS $570,541 $596,241
-------- --------
</TABLE>
The accompanying Notes are an integral part of these statements.
12
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EXOTECH INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30
1996 1995
---- ----
CURRENT LIABILITIES
Notes Payable and Current
Maturities of Long Term
Debt (Note 5) $372,294 $311,793
Accounts Payable and Other
Accrued Liabilities 105,664 51,996
Accrued Payroll and Employee
Benefits 67,180 46,845
Accrued Officer Salary and
Benefits 201,510 212,285
Accrued Interest 79,304 76,149
------ ------
Current Liabilities 825,952 699,068
SHAREHOLDERS' DEFICIT
Common Stock, par value $.10
per share; 1,500,000 shares
authorized; 970,135 shares
issued and outstanding 97,014 97,014
Paid in Surplus 1,169,645 1,169,645
Accumulated Deficit (1,409,650) (1,257,066)
Treasury Stock 27,748 shares
at cost (112,420) (112,420)
--------- ---------
(255,411) (102,827)
--------- ---------
Total Liabilities and
Shareholders Deficit $570,541 $596,241
======== ========
The accompanying Notes are an integral part of these statements.
13
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EXOTECH INCORPORATED AND SUBSIDIARY
STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH 1996 1995 1994
- --------------------------- ---- ---- ----
<S> <C>
CASH FLOWS FROM OPERATING TRANSACTIONS
Net Loss: $(152,584) $(68,130) $(35,448)
Add: Non Cash Income Determinants
Depreciation & Amortization 1,101 2,454 3,809
Add (Deduct): Changes in Current Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (141) 83,447 (44,579)
(Increase) Decrease in Prepaid Expenses 1,050 (572) 29
(Increase) Decrease in Inventory 23,764 (27,899) (3,176)
Increase (Decrease) in Accounts Payable 53,667 (4,484) (10,613)
Increase (Decrease) in Accrued Payroll & Related 9,560 15,176 30,314
Increase (Decrease) in Accrued Interest 3,155 26,447 23,859
------ ------- ------
Cash Provided By (or) Used In Operating Transactions $(60,428) $26,439 $(35,805)
----------- ------- --------- -------- ---------
CASH FLOWS FROM FINANCING TRANSACTIONS:
Proceeds from Notes 87,500 4,000 55,000
Payment on Notes (26,999) (30,903) (21,500)
-------- -------- --------
Cash Provided By (or) Used In Financing Transactions 60,501 (26,903) 33,500
----------- ------- ------- -------- ------
CASH FLOWS FROM INVESTING TRANSACTIONS:
Purchase of Equipment -- (587) 1,334
------- ----- -------
Cash Provided By (or) Used In Investing Transactions -- (587) 1,334
----------- ------- ------- ----- -------
INCREASE (DECREASE) IN CASH 73 (1,051) (971)
CASH BALANCE - BEGINNING 32 1,083 2,054
----- ------ -------
CASH BALANCE - ENDING $105 $32 $ 1,083
===== ==== ==========
SUPPLEMENTAL INFORMATION
Interest Paid $26,160 $3,740 $2,936
Taxes -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
14
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EXOTECH INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE THREE YEARS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock
($0.10) Paid-In Accumulated Treasury Stock
----------------
Par Value Surplus (Deficit) Shares Cost
<S> <C>
Balance, June 30, 1993 970,135 $97,014 $1,169,645 $(1,153,488) 27,748 $(112,420)
Add (Deduct) - - - - - -
Net Profit (Loss) - - - (35,448) - -
Balance, June 30, 1994 970,135 $97,014 $1,169,645 $(1,188,936) 27,748 $(112,420)
Add (Deduct) - - - - - -
Net Profit (Loss) - - - (68,130) - -
Balance, June 30, 1995 970,135 $97,014 $1,169,645 $(1,257,066) 27,748 $(112,420)
Add (Deduct) - - - - - -
Net Profit (Loss) - - - (152,584) - -
Balance June 30, 1996 970,135 $97,014 $1,169,645 $(1,409,650) 27,748 $(112,420)
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
EXOTECH INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DISCUSSION OF OPERATIONS AND REALIZATION OF ASSETS
For the fiscal year ended June 30, 1996, the Company had an operating profit of
$1,633. The Company had an operating profit of $2,057 in the prior fiscal year.
At June 30, 1996, approximately $75,000 of accounts payable were more than 30
days old.
The accompanying financial statements have been prepared on the "going concern"
basis of generally accepted accounting principles. The ability of the Company to
continue normal operations is dependent upon its ability to obtain the required
amounts of working capital to finance the existing contracts, to continue the
acquisition of additional contracts, and to pursue instrument sales at prices
sufficient to recover costs and some profits.
Inventory of Crystallographic Scanners have experienced no sales activity since
their development approximately four years ago. Efforts have recently been
intensified to sell the products, design package, software, patents and licenses
to larger manufacturers of instruments with a significant presence in the
semiconductor processing equipment market. Should those efforts fail, the
company may be forced to charge off the carrying value of approximately $243,000
against income.
At June 30, 1996, the remaining value (backlog) of existing sales contracts were
approximately $279,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is a manufacturer of Electro-optical instruments. It performs the
research and development required for those products.
Principle of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiary, after elimination of all significant intercompany
transactions.
Revenue Accounting
The Company records revenue earned based on shipments of units of its products.
Inventory
Finished goods inventory is stated on the basis of the lower of costs (average)
or market value.
Depreciation
The Company uses a straight-line, or if appropriate, the accelerated cost
recovery system method of depreciation for both tax and financial reporting
purposes. The following depreciable lives are used:
Laboratory equipment 5 or 8 years
Office furniture and equipment 5 years
Leasehold improvements Life of lease
Patents 17 years
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Depreciation expenses recorded in the consolidated statement of operations are
as follows: 1994 - $3,809, 1995 - $2,454, and 1996 - $1,101. The Company's limit
for capitalization of property and equipment is $500 or more.
Income Taxes
Differences between income (loss) for financial reporting purposes and tax arise
due to (a) the use of the completed-contract method of accounting for long-term,
fixed-price contracts for income tax reporting purposes and the per units
shipped method for financial statement purposes, (b) the capitalization and
amortization of research and development costs for income tax reporting purposes
although these costs have been deducted in prior periods for financial statement
purposes; and (c) timing differences in deducting anticipated losses on
contracts.
Provisions for income taxes are based on pre-tax income reported in the
financial statements, using the guidance of Financial Accounting Standards Board
Statement No. 109 (FAS #109) "Accounting for Income Taxes." In applying the
standard the Company considered temporary differences for net operating losses
incurred for accounting purposes but not yet utilized for income tax purposes.
The company has $352,209 of accumulated net operating losses that can be used in
future years to reduce taxable income. The effect of this temporary difference
is a deferred tax asset of $144,406. The net change in the deferred tax asset
from the prior year is an increase of $27,849. While the accounting standard
allows companies to recognize such assets, Exotech has elected to provide a
valuation allowance for the full amount because of the uncertainty of realizing
the benefits. The net operating losses expire in the years 1996-2009. Following
is a table reconciling accounting net loss to taxable net loss for each of the
last three years ended June 30.
1995 1994 1993
---- ---- ----
Accounting Net Loss $(68,130) $(35,448) $(23,854)
Patent Amortization (8,674) (9,874) (10,874)
------- ------- --------
Taxable Net Loss $(76,804) $(45,322) $(34,728)
========= ========= =========
Repairs and Betterments
Repairs are expensed as incurred. Betterments are capitalized and depreciated
over the remaining useful life of the assets.
Accounts Receivable
Accounts receivable consist of amounts billed from sales as of June 30, 1996. In
the prior fiscal year an allowance for doubtful accounts was set up for $43,368.
This amount represents a fee for research and development costs from fiscal year
ended June 30, 1994. This amount has since been written off, and there is no
allowance for doubtful accounts as of June 30, 1996, as the Company considers
accounts receivable to be fully collectible.
Cash And Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and
17
<PAGE>
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
(3) INVENTORY
Inventories are summarized as follows:
1996 1995
---- ----
Raw Materials $32,625 $ 32,625
Goods in Process 505,062 528,825
Finished Goods 14,000 14,000
--------- ---------
$551,687 $575,450
(4) RESEARCH AND DEVELOPMENT COSTS
The Company's accounting policy is to write off research and development costs
as incurred.
(5) NOTES PAYABLE
Notes payable at June 30, 1996, consist of three demand notes of $100,000,
$8,000 and $47,000 with interest at 8.5% per annum to three of the Company's
former directors. In addition, Notes amounting to $217,294 are payable with
interest at 8.5% per annum to one officer/employee. Periodically, the Company
has obtained Producer Loans from Spiral Biotech,Inc. that are secured by
inventory instruments (bacteria colony counters) at a negotiated interest rate.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
Average* aggregate amount outstanding during year $352,712 $333,089
Maximum amount outstanding during year 372,294 338,297
Average* interest rate on loans
outstanding at end of year 8.50% 8.48%
Average* interest rate incurred
during the period 8.50% 8.50%
</TABLE>
*Average amounts outstanding during the year and related average interest rates
were determined from the average of the month-end amounts outstanding. The
average interest rate at each year-end was determined from the weighted average
of amounts outstanding at that time.
(6) COMMITMENTS AND CONTINGENCIES
All operations of the Company and subsidiary were conducted in leased
facilities. In March 1990, the Company entered into a lease agreement for a
three-year period for the present facilities at 8502 Dakota Drive, Gaithersburg,
MD. This lease was renegotiated and extended for three years expiring November
30, 1995 and was again extended for an additional three years effective December
1, 1995. The current lease expires November 30, 1998.
Non-Financing 1999 1998 1997
------ ------ -----
Building $13,220 $31,344 $30,431
18
<PAGE>
(7) EARNINGS PER SHARE
Per share computations were based on the weighted average number of shares
outstanding during the periods, excluding options because the market price and
option price were the same.
(8) SUPPLEMENTAL PROFIT AND LOSS INFORMATION
<TABLE>
<CAPTION>
Description 1996 1995 1994
----------- ---- ---- ----
<S> <C>
Taxes other than income:
Payroll $9,588 $14,487 $18,307
Franchise, Personal Property and
other Miscellaneous 1,137 2,681 1,528
Rents, including equipment rental 40,097 39,823 38,488
</TABLE>
(9) DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No disagreements exist between management and its independent public accounting
firm.
(10) TRANSACTIONS WITH SHAREHOLDERS
Sales to a company owned by a shareholder aggregated $340,841 and $343,507 for
the fiscal years ended June 30, 1996 and 1995, respectively. Amounts due from
such sales at June 30, 1996 and 1995 were $11,073 and $58,252, respectively.
Sales were consummated on terms to those prevailing with unaffiliated customers.
(11) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, cash equivalents, short-term investments: The carrying amounts
reported in the Consolidated Balance Sheets approximate fair values
because of the short maturities of the instruments.
19
<PAGE>
(12) VALUATION AND QUALIFYING ACCOUNTS
The following is a schedule of Valuation and Qualifying Accounts:
<TABLE>
<CAPTION>
Additions:
Balance Charged to Balance
Beginning Costs and End of
Description of Period Expenses Deductions Period
<S> <C>
Allowance deducted from asset to which it applies:
Allowance for Doubtful Accounts:
Year Ended June 30, 1995 $ -- 0 -- $43,368 $43,368(A) $ -- 0 --
Allowance for Depreciation:
Year Ended June 30, 1996 194,097 174 194,271
Year Ended June 30, 1995 192,571 1,526 194,097
Year Ended June 30, 1994 188,762 3,809 192,571
</TABLE>
Note (A): Uncollected receivables written off.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a), (b), (e)
NAME: ROBERT G. LYLE (67)
Business experience President, CEO of the
during past 5 years Company and subsidiary; Director
Other Positions: None
Other Directorships: None
NAME: JAMES G. PAULI (41)
Business experience Managing Consultant, Electronic Data Systems, Inc.
during past 5 years Management Analyst, Price Waterhouse
Other Positions: Treasurer
Other Directorships: None
NAME: ANDREW WONG (43)
Business experience Vice President, Marketing, GE Spacenet
during past five years Director, Business Development, COMSAT
Other Positions: None
Other Directorships: Board of Advisors, Univ. of California,
Lawrence Livermore Laboratory
Note: All terms expire in December, 1997
c. Not applicable.
d. There are no family relationships between any of the above
listed directors and any other director or executive officer of the Company.
f. None of the directors or executive officers have been subject
to any bankruptcy or insolvency proceedings, criminal proceedings, or
injunctions against dealing in investments during the past three years.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
A. No individual in management received remuneration of
$60,000 or more. Directors and officers as a group of four people: $3,900.
B. No annuity, pension or retirement benefits are proposed to be
paid to any director or officer in the event of his retirement. No remuneration
payments are proposed to be made in the future, directly or indirectly, to any
director or officer by the Company or its subsidiary pursuant to any existing
plan or arrangement.
C. There are no fees paid to directors for services in that
capacity.
21
<PAGE>
D. No officer, or director of the Company: (1) received options
during the reporting period; or (2) exercised options during the reporting
period, or (3) held options as of September 1, 1996. The officers and directors
of the Company as a group did not: (1) receive options during the reporting
period, or (2) exercise options during the reporting period, or (3) hold options
as of September 1, 1996.
E. Termination of employment - the Company has no employment
termination agreements with officers or employees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of September 27, 1996, the information with
respect to common stock ownership of each person known by the Company to own
beneficially more than 5% of the shares of the Company's common stock, par value
$0.10 per share, and of all officers and directors as a group:
AMOUNT AND NATURE OF %
NAME AND ADDRESS BENEFICIAL OWNERSHIP CLASS
Carter C. Chinnis Of Record 90,244
Beneficially 1,200
Total 91,444 9.70
Robert G. Lyle Of Record 68,242 7.24
William T. Stephens Of Record 96,449 10.23
Denzil C. Pauli Of Record 204,547 21.70
Calvin S. Koonce Of Record 102,100 10.83
Samuel Schalkowsky Of Record 92,076 9.77
Current officers and directors as a group own a total of 68,242, representing
7.24% of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
a. Transactions with management and others. The Company was not
a party to material transactions since the beginning of its last fiscal year in
which a holder of 5% of the securities of the Company had or has a direct or
indirect material interest, other than in the normal course of bacteria colony
counters and related equipment sales on an exclusive basis with Spiral Biotech,
Inc. owned by a shareholder holding 9.77% of the Company's stock.
b. Certain Business relationships. None of the Company's
directors, executive officers, or nominees for director have a working
relationship with any of the Company's vendors, customers or sources of working
capital that would be sizeable enough to generate a conflict of interest or
undue influence, to the best knowledge of management. William T. Stephens, is
the Company's legal counsel; however, revenue generated by services rendered to
the Company do not exceed 5% of that law firm's revenues.
c. Indebtedness of Management. No director or officer of the
Company or any associate of any director or officer were indebted to the
Company.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 10-K
A 1. LIST OF FINANCIAL STATEMENTS IN PART II OF THIS REPORT.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...................................................... 9-10
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THREE YEARS
ENDED JUNE 30, 1996.................................................................................... 11
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 AND 1995.................................................... 12-13
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
YEARS ENDED JUNE 30, 1996.............................................................................. 14
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S
INVESTMENT - FOR THE THREE YEARS ENDED JUNE 30, 1996................................................... 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................................................. 16-20
</TABLE>
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
Columns omitted from schedules filed have been omitted because the information
is not applicable.
Individual financial statements of the Company are omitted because it is
primarily an operating company and the subsidiary included in the consolidated
financial statements being filed in the aggregate does not have minority equity
interests and/or indebtedness to any person other than the parent in the amounts
which together exceed 5% of the total consolidated assets at the date of the
latest balance sheet filed excepting indebtedness incurred in the ordinary
course of business which is not overdue and which matures within one year of its
creation, whether evidenced by securities or not, and indebtedness which is
collateralized by the parent by guarantee, pledge, assignment or otherwise.
A. 2. Parent and Subsidiary
The Company has no parent. The subsidiary of the Company is:
NAME: EXOTECH RESEARCH & ANALYSIS, INC.
STATE OF INCORPORATION: DELAWARE
SECURITIES OWNED BY THE COMPANY: COMMON STOCK, 100%
The foregoing is included in the consolidated statements of the Company
and subsidiary.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
September 27, 1996 BY: /s/ Robert G. Lyle
DATE ROBERT G. LYLE, PRESIDENT &
CHIEF EXECUTIVE OFFICER
September 27, 1996 BY: /s/ James G. Pauli
DATE JAMES G. PAULI, TREASURER
AND DIRECTOR
September 27, 1996 BY: /s/ Andrew Wong
DATE ANDREW WONG, SECRETARY &
DIRECTOR
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 105
<SECURITIES> 0
<RECEIVABLES> 11,073
<ALLOWANCES> 0
<INVENTORY> 551,687
<CURRENT-ASSETS> 563,209
<PP&E> 231,530
<DEPRECIATION> 231,119
<TOTAL-ASSETS> 570,541
<CURRENT-LIABILITIES> 825,952
<BONDS> 0
0
0
<COMMON> 97,014
<OTHER-SE> (352,425)
<TOTAL-LIABILITY-AND-EQUITY> 570,541
<SALES> 367,259
<TOTAL-REVENUES> 371,859
<CGS> 365,626
<TOTAL-COSTS> 365,626
<OTHER-EXPENSES> 129,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,817
<INCOME-PRETAX> (152,584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (152,584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (152,584)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
