UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-14273
DCX, INC.
(Exact name of Small Business Issuer as specified in its charter)
COLORADO 84-0868815
................................ ..................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3002 N. State Highway 83, Franktown, Colorado 80115-0569
....................................................................
(Address of principal executive offices)
(Zip Code)
(303) 688-6070
.............................................
(Registrant's telephone number, including area code)
Not Applicable
.......................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
4,326,345 Common Shares were outstanding as of March 31, 1996.
Transitional Small Business Format: Yes No X
Number of pages in this report is 10.
<PAGE>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Balance Sheets
March 31 September 30
1996 1995
(Unaudited) (Audited)
- -------------------------------------------------------------------------------
Assets
Current:
Cash and Cash equivalents $ 202,459 $ 125,844
Restricted cash 0 154,985
Accounts receivable 1,267,326 2,061,931
Inventories 1,132,344 810,922
Prepaid expenses 236,899 118,316
Subscriptions receivable 0 25,000
- --------------------------------------------------------------------------------
Total current assets 2,839,028 3,296,998
- --------------------------------------------------------------------------------
Property and equipment:
At cost 2,032,536 2,039,534
Less: accumulated depreciation (703,134) (653,031)
- --------------------------------------------------------------------------------
Net property and equipment 1,329,402 1,386,503
- --------------------------------------------------------------------------------
Other assets 255,947 131,431
- --------------------------------------------------------------------------------
$ 4,424,377 $ 4,814,932
- --------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements
2
<PAGE>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Balance Sheets
March 31 September 30
1996 1995
(Unaudited) (Audited)
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current:
Notes payable $ 689,685 $ 1,026,024
Accounts payable 366,136 588,965
Accounts payable - terminated contracts 347,222 373,042
Accrued expenses 58,335 206,150
Accrued litigation settlement 0 150,000
- --------------------------------------------------------------------------------
Total current liabilities 1,461,378 2,344,181
Long-term debt, less current maturities 362,897 362,897
- --------------------------------------------------------------------------------
Total liabilities 1,824,275 2,707,078
- --------------------------------------------------------------------------------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred stock, $.001 par value,
20,000,000 shares authorized, no
shares issued or outstanding
Common stock, no par value, 2,000,000,000
shares authorized; shares issued and
outstanding, 4,326,345 and 3,853,569
at March 31, 1996
and 1995, respectively. 4,998,911 4,765,540
Additional paid-in capital 329,384 329,384
Subscriptions receivable (179,000) (179,000)
Accumulated deficit (2,549,193) (2,808,070)
- --------------------------------------------------------------------------------
Total stockholders' equity 2,600,102 2,107,854
- --------------------------------------------------------------------------------
$ 4,424,377 $ 4,814,932
- --------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements
3
<PAGE>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DCX, Inc. and Subsidiaries
Condensed and Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Six months ended Three months ended
March 31 March 31
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $2,448,661 $ 921,013 $ 1,544,350 $ 442,025
Cost of sales 1,729,492 530,066 1,121,479 237,735
- -------------------------------------------------------------------------------------------------------------
Gross profit on sales 719,169 390,947 422,871 204,290
- -------------------------------------------------------------------------------------------------------------
General and administrative expenses 488,122 685,049 255,424 330,577
- -------------------------------------------------------------------------------------------------------------
Income (loss) from operations 231,047 (294,102) 167,447 (126,287)
Other income (expense):
Interest expense ( 70,824) ( 26,918) (33,602) ( 14,401)
Investment and other income 14,956 7,151 4,599 4,285
Other expense ( 4,126) ( 1,083) (4,126) ( 650)
Forgiveness of debt 87,826 0 0 0
- --------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 258,879 $ (314,952) $ 134,318 $ (137,053)
- --------------------------------------------------------------------------------------------------------------
Net Income (loss) per share $ .06 $ (.08) $ .03 $ (.04)
- --------------------------------------------------------------------------------------------------------------
Weighted average number of shares
of common stock outstanding 4,152,710 3,853,569 4,200,298 3,853,569
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements
4
<PAGE>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Statements of Cash Flows
(Unaudited)
For the Six-Month Periods Ended March 31, 1996 1995
- --------------------------------------------------------------------------------
Operating activities:
Net income (loss) $ 258,879 $ (314,609)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 50,103 27,206
(Increase) decrease in accounts receivable 794,605 (981)
Increase in inventory (321,422) (113,011)
(Increase) decrease in prepaid expenses (118,583) (28,905)
(Increase) decrease in other assets (124,516) (50,054)
(Decrease) increase in accounts payable (248,649) 113,082
(Decrease) increase in other liabilities (147,815) 271,442
Decrease in litigation settlement liability (150,000) 0
Miscellaneous changes 25,483 0
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 18,085 ( 95,830)
- --------------------------------------------------------------------------------
Investing activities:
Acquisition of property and equipment 11,499 ( 70,778)
Restricted cash 150,000 0
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 161,499 ( 70,778)
- --------------------------------------------------------------------------------
Financing activities:
Payments on long-term debt, net (336,341) (52,192)
Stock subscriptions paid/issuance of common stock 233,372 50,000
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (102,969) (2,192)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash 76,615 (168,800)
- --------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period $ 125,844 $ 201,561
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 202,459 $ 32,761
- --------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to financial statements
5
<PAGE>
DCX, INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by DCX, INC. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. DCX, INC. believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position as of March 31,
1996, the consolidated results of its operations for the six- periods ended
March 31, 1995, and 1996 and statements of cash flows for the six-month periods
then ended.
The accounting policies followed by the Company are set forth in the annual
report of September 30, 1995, filed on Form 10-K, and the audited consolidated
financial statements therein with the accompanying notes thereto. While
management believes the procedures followed in preparing these consolidated
financial statements are reasonable, the accuracy of the amounts are in some
respects dependent upon the facts that will exist, and procedures that will be
accomplished by DCX, INC. later in the year.
During April, 1994, the Company formed a subsidiary corporation, GeoStars,
International, Inc. which in turn subsequently formed two subsidiary operating
corporations to provide products and services in the geographic information
services (GIS) arena. Accordingly, these quarterly consolidated financial
statements represent the consolidated results of operations. All intercompany
balances and transactions have been eliminated in the consolidation of the
financial statements.
The consolidated results of operations for the six-month period ended March 31,
1996, are not necessarily indicative of the results to be expected for the full
year ending September 30, 1996.
(2) Accounts Receivable
Accounts receivable contain amounts computed under the cost-to-cost method to
determine percentage of completion as described in the Form 10-K for September
30, 1995. A portion of the total amount of receivables represents unrecovered
costs and estimated profits subject to future negotiation and represented by
certain portions of a settlement proposal and related claim asserted against the
Department of Defense for contracts terminated by the Government (See Note 10 to
the financial statements accompanying the Form 10-K and Note 4, below). Such
receivables amounted to nil at March 31, 1996 and $1,702,009 at September 30,
1995 as compared to $2,062,550 at March 31, 1995.
(3) Provision for Income Taxes
At the beginning of the fiscal year the Company had net operating loss
carryforwards of $2,053,000 with expirations through 2010. At March 31, 1996,
the amount of the net operating loss carryforward balance is estimated at
$1,794,121. The Company expects to incur a minimal amount of alternative minimum
tax for the fiscal year. Since the Company is unable to determine that deferred
tax assets exceeding tax liabilities are more likely than not to be realized, it
will record a valuation allowance equal to the excess deferred tax assets at
fiscal year end.
6
<PAGE>
(4) Terminated Contracts
As reported in the Form 10-K for September 30, 1995, the Company and the Defense
Logistics Agency (DLA) agreed to a final settlement in November, 1995, on two of
three terminated contracts. The last partial payment, therefor, was received in
January, 1996.
A third contract with DLA required the Company to design, develop test and
manufacture light sets to a specified schedule. Testing of the lights was
subcontracted; scheduling delays resulting from a higher priority Government
contract caused the Company to miss the contractually required date for an
environmental test report by three days. Federal regulations require a delivery
date extension equal to the Government caused delay. The contract was terminated
for default by the Government in July, 1988. The Company asserted in July 1991
hearings the termination for default was erroneous as it resulted from
Government caused delays in testing and, therefor, the termination should be
characterized as for the convenience of the Government. The Company received a
decision from the ASBCA holding for the Government. The Company has filed an
appeal before the U.S. Court of Appeals for the Federal Circuit; oral arguments
were presented on February 7, 1996, legal brief to the court en banc was
submitted April 23, 1996. Were the Company not to prevail, it could record a
loss of approximately $521,000. Neither of the possible results is recorded in
the financial statements as the ultimate outcome cannot be determined at
present.
See also the more detailed explanation of terminated contracts in Note 10 to the
Consolidated Financial Statements for September 30, 1995, as filed on Form 10-K.
(5) Lease Obligations
The Company leases various equipment under capital leases that expire through
June 2000 as noted in Note 7 to the Financial Statements in Form 10-K, September
30, 1995.
----------------------
PART I, ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition:
Liquidity.
Final negotiations related to two terminated Government contracts were recently
concluded. (See Form 10-K, Item 3, Legal Proceedings, and Item 7, MD & A,
Liquidity) As a result the Company received three payments in final settlement,
the last of which arrived during January, 1996. A third contract was also
appealed; it is now in the U.S. Court of Appeals. (See Note 4, above.)
Cash and marketable securities increased $76,615 to $202,459 from $125,844 at
September 30, 1995, primarily as a result of payments received for the
terminated contracts in cash provided by operations, which totaled $18,085 while
cash used for debt reduction payments was $732,805.
The Company presently has working capital of $1,377,650 as compared to
$1,312,089 at March 31, 1995, and to $952,817 at the beginning of the fiscal
year. The primary causes for the increase from a year ago are settlement
proceeds received. The decrease in accounts receivable was to reduce terminated
contract debt as well as to lay in materials for the Company's increasing
contract backlog.
The Company's current ratio, the ratio of total current assets to total current
liabilities, increased to 1.94:1 which compares to 1.55:1 a year ago and is
improved over 1.41:1 at September 30, 1995.
7
<PAGE>
Capital Resources.
Until fiscal year 1993 the Company's primary source of liquidity historically
consisted of cash flow from operations. During fiscal years 1993 through 1996
the Company received reimbursements of from the two successfully litigated
terminated contracts in the form of a number of partial payments against the
settlement proposals. As a result of final negotiations concluded with Defense
Logistics Agency, the Company has received the remaining amounts of the agreed
settlement for these two contracts. The pending appeal on the third contract may
produce additional settlement payments; however, there is no guarantee the
Company will prevail.
During this quarter, the Company completed a refinancing of its real property
mortgage and reduced monthly cash payments by $6,000. This is the first phase of
its refinancing efforts and provides an interim period during which it expects
to secure permanent financing to consolidate its real property mortgage and the
note payable which matures on June 3, 1996. The Company received notification
that it qualifies for the second phase of the financing. The Company's mortgage
financing advisor is confident of completing the phase two consolidation in a
timely manner. See also the "Going Concern Issues" caption under Item 7, MD & A,
Liquidity, of Form 10-K.
The Company entered into a definitive agreement to purchase substantially all
the assets and liabilities of Westinghouse Landmark GIS, Inc., a wholly owned
subsidiary of Westinghouse Electric Corporation, on January 11, 1996. (See
"Major Asset Purchase Agreement" caption under Item 7 of Form 10-K). In order to
raise funds for the $2.4 million purchase price required at the closing, it
issued a private offering memorandum for the sale of its securities on February
7, 1996. The offering period did not produce sufficient funds for the
transaction and on March 20, 1996, the purchase agreement between the Company
and Westinghouse was terminated. Seller's representatives notified the Company
that failure to close is a breach of the purchase agreement and they reserve the
right to pursue a claim for damages. The sellers orally advised the Company they
would seek other potential purchasers and that they would also consider any
further offers from the Company for the purchase. The offering was terminated by
the Company on April 30, 1996.
Results of Operations:
First Half of Fiscal Year 1996.
During the first six months of fiscal year 1996 net sales increased by
$1,527,648, or 165 percent, over the same period of the prior year. Cost of
sales was $1,729,492, or 71 percent of sales, and resulted in a gross profit of
$719,169, or 29 percent of sales, decreased from 42 percent of sales for the
same period of the prior year. Decrease in gross profit occurred due to learning
curve associated with complex new products in certain new contracts. Sales
increases during the current fiscal year resulted from the Company commencing
production on its growing backlog which rose because of restructuring in the
defense industry causing prime contractors to outsource more work.
General and Administrative expenses of $488,122 for the current period decreased
$685,049 from a year ago and reflect the control efforts of management and the
curtailment of nonproductive GIS subsidiaries. After factoring out acquisition
expenses of $107,751, recurring G & A expenses amount to $380,371. Interest
expense increased because of capital lease imputed interest costs this period;
investment income increased as a result of increased money market balances. In
liquidating a $287,826 note balance related to the terminated contracts the
Company recorded a discount of $87,826 as forgiveness of debt.
Restricted cash and accrued litigation settlement both decreased to nil as a
result of the release of a bond (posted by the Company to indemnify a Director
of the Company) to a former employee. The release resulted from a final decision
on a case which was pending before the Colorado Court of Appeals. The finding
was for the plaintiff and the expense had been recorded in a prior year.
8
<PAGE>
First Half of Fiscal Year 1995.
During the first six months of fiscal 1995 net sales increased by $308,345, or
50 percent, over the same period of the prior year. Cost of sales was $530,000,
or 57 percent of sales, and resulted in a gross proft of $390,947, or 42 prcent
of sales which compared favorably to gross profit of 28 percent of sales for the
same period of the prior year. The increase in gross prodit was attributable to
the increased volume of production during the period. Sales increased a a result
of restructuring in the defense industry causing prime contractors to outsource
more work.
General and administrative expenses for the period reflected the effects of
funding the development stage subsidiaries. While G & A expenses increased
$329,365 over the same period of the prior year, approximately $345,363 of G & A
expenses resulted from financial support attempting to develop the GIS
subsidiaries. After factoring out this amount, G $ A expenses related to
manufacturing operations would amount to $339,686, or a decrease of four percent
from the prior year. Although interst expense increased slightly, investment
income decreased by $7,716, or 50 percent from the prior year because of
decreased amounts of cash and marketable securities.
Second Quarter of Fiscal Year 1996.
Second quarter sales for fiscal 1996 increased by $1,102,325, or 249 percent,
over the same quarter of the prior year. Cost of sales was $1,121,479, or 73
percent of sales, and resulted in a gross profit of $422,871, or 27 percent of
sales versus 46 percent for the same period of the prior year. The decrease was
attributable to the learning curve effect associated with new and more complex
products on which production began during the current quarter.
Reduced general and administrative expenses for the quarter reflected the effect
of no longer funding the development stage subsidiaries. Interest expense has
increased because of imputed interest expense generated by leased equipment.
Sales increased during the quarter as compared to the same period of the prior
year and as a reslut the Company experienced net income of $134,318, or $.03 per
share, versus a net loss of $.05 per share for the prior year. Approximately
$153,678, or $.04 loss per share of the prior year net loss, resulted from
activities related to the GIS subsidiaries as compared with $43,241 of GIS
acquisition expense in the current quarterly period.
Second Quarter of Fiscal Year 1995
Quarterly sales of $442,025 were 45 percent higher than the same period of the
prior year. Cost of sales amounted to $237,735 which was 54 percent of sales,
down from the prior year's 70 percent. Gross profit of $204,290 was 46 percent
of sales and up from the prior year's 30 percent. The positive changes resulted
from increased manufacturing volume over the prior year.
General and administrative expenses increased $142,711 over the same period of
the prior year primarily as a result of development expenses of the GIS
subsidiaries.
Contract Backlog
The Company's manufacturing operation has active funded contracts and awarded
work amounting to $8.5 million as compared to an approximate $4.8 million
backlog with $4.2 million of uncompleted work a year prior. The current backlog
contains approximately $5.5 million of uncompleted work of which approximately
$.5 million is unfunded. Deliveries on funded orders are scheduled over the next
40 months. The Company is aggressively bidding opportunities with prime
contractors for defense
9
<PAGE>
opportunities and sends its technical staff to meet personally with program
managers in order to more competitively meet their requirements. The Company is
confident that during the ensuing year these projects will result in additional
orders as during the past fiscal year. In addition, the Company continues to be
invited to bid on more projects with new and existing customers.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.
On Form 8K, dated March 29, 1996, the Company established a record date of close
of business, April 30, 1996, for shareholders eligible to vote at the annual
shareholder's meeting which is set for 2:00 PM on June 7, 1996, at the Company's
executive offices. A board of four directors will be elected. The same report
announced the extension of the private offering to April 30, 1996.
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.
D C X , I N C .
Dated: May 3, 1996
/S/ FREDERICK G. BEISSER
----------------------------------------
Frederick G. Beisser
Chief Financial Officer,
Secretary & Treasurer
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 202,459
<SECURITIES> 0
<RECEIVABLES> 1,267,326
<ALLOWANCES> 0
<INVENTORY> 1,132,344
<CURRENT-ASSETS> 2,839,028
<PP&E> 2,032,536
<DEPRECIATION> 703,134
<TOTAL-ASSETS> 4,424,377
<CURRENT-LIABILITIES> 1,461,378
<BONDS> 0
0
0
<COMMON> 4,998,911
<OTHER-SE> 2,699,577
<TOTAL-LIABILITY-AND-EQUITY> 2,600,102
<SALES> 2,448,661
<TOTAL-REVENUES> 2,448,661
<CGS> 1,729,492
<TOTAL-COSTS> 1,729,492
<OTHER-EXPENSES> 4,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,824
<INCOME-PRETAX> 258,879
<INCOME-TAX> 0
<INCOME-CONTINUING> 258,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,879
<EPS-PRIMARY> 06
<EPS-DILUTED> 06
</TABLE>
