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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ___________
Commission file number 0-14273
DCX, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0868815
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3002 North State Highway 83, Franktown, Colorado 80116-0569
(Address of principal executive offices) (Zip code)
Registrant's telephone number (303) 688-6070
<TABLE>
<CAPTION>
<S> <C>
Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered
Title of each class
(None) (None)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part II of this Form 10-K or any amendment to
this Form 10-K. [X]
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities and 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
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the November 30, 1995, average of closing bid and asked
prices of the Common Stock as reported on the NASDAQ Small Cap Market-sm-, was
approximately $4,291,958.
As of November 30, 1995, the Registrant had outstanding 4,115,621 shares of
Common Stock.
EXHIBIT INDEX BEGINS ON PAGE 15. TOTAL NUMBER OF PAGES IN THIS REPORT IS 39.
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PART I
ITEM 1 - BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS.
DCX, Inc. (the "Company") was originally incorporated under the name of Douglas
County Industries, Inc., as a Colorado corporation on December 8, 1981. The
Company's name was changed to DCX, Inc. on January 2, 1986, and the Company
completed its initial public offering on February 7, 1986. During the past three
fiscal years the Company has continued to provide custom manufacturing services
and products to the aerospace and commercial markets and has successfully
increased revenues and diversified its customer base. In April, 1994, the
Company identified Geographic Information Systems (GIS) as a means of
diversifying its activities outside of manufacturing and incorporated a wholly
owned Colorado subsidiary, GeoStars International, Inc. (GeoStars), doing
business as GeoNova International, Inc., to provide services and products in the
geographic information system (GIS) arena. In early fiscal year 1995 the Company
formed two additional operating corporations, GeoNova U.S., Inc., a Colorado
corporation wholly owned by GeoStars, and GeoNova S.A, an Argentine corporation.
Subsequently, because of lack of performance the Company decided to redirect GIS
efforts away from the particular focus of these subsidiaries, and to concentrate
on establishing cadastral mapping activities within the continental United
States effective September 30, 1995.
On January 5, 1996, the Company entered into a definitive agreement for the
purchase of the net assets of an operating GIS company specializing in
cadastral (tax) mapping. This purchase will be the basis for the Company's
future GIS activities (see additional disclosure in Item Seven, Management
Discussion and Analysis, below).
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Prior to fiscal year 1994 the Company operated in one industry segment, the
custom manufacture market selling to large prime government contractors, the
U.S. Government and to commercial customers. During fiscal year 1994 the company
took steps to enter the geographic information systems sector. The Company's
manufacturing experience, which it believes is consistent with industry norms,
results in a somewhat lower profit margin in its government contracts than in
its commercial production.
The consolidated financial statements for fiscal years 1995 and 1994 contain
information and data for GIS sector related start-up and operations costs while
fiscal year 1993 data does not.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
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<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Sales to unaffiliated customers:
Custom Manufacturing 2,140,859 979,594 764,153
Geographic Info Services 40,481 53,000 -0-
Loss from Operations:
Custom Manufacturing 494,428 588,542 565,542
Geographic Info Services 448,587 160,087 -0-
Identifiable Assets:
Custom Manufacturing 4,798,078 5,108,937 6,224,194
Geographic Info Services 16,854 306,533 -0-
</TABLE>
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(C) NARRATIVE DESCRIPTION OF BUSINESS.
The Company is primarily engaged in the engineering design, development, test
and custom manufacture of medium technology electrical, electronic and
electromechanical assemblies and systems. The Company also manufactures wire
harnesses and cable assemblies for use by industrial, commercial, computer,
communications industries and the Federal Government.
The Company also entered into the GIS sector and engages in the geographic
information systems and services sectors where it will concentrate primarily on
cadastral, or tax, mapping.
Manufacturing.
The Company provides its custom manufacturing products to various entities in
the military, aerospace industry and to industrial and commercial customers.
Although much of its business results from the needs of the Federal Government,
the Company also manufactures products for the commercial market as seen in the
representative customers, below. Based on the diverse and continuing demand for
cable assemblies, wire harness and electromechanical products in aircraft,
tanks, vehicles, telecommunication devices and flight simulators, as well as
equipment used for support and maintenance of these systems, there appears to be
a continuing long term need for the Company's custom manufactured products.
The Company's major custom manufacturing customer in the Government sector is
Lockheed Martin Aeronautical Systems from which 48 percent of current fiscal
year consolidated revenue was received; sales to Northrup-Grumman totaled 17
percent while Woodward-Governor and Codar Technology, Inc. represented 10
percent each. Other Government sector customers (any one of which comprised less
than ten percent of revenue) from which the Company continues to receive
opportunities are Hughes Aircraft Corporation, Frost Engineering, OEA Inc.,
Hercules, Parker Hannifen and Thiokol Corporation. Commercial customers include
Peterson Builders, Otsuka Electronics Corporation, KDI Precision Inc., and
others.
Although the Company is not completely dependent upon any single customer, a
significant portion of the revenue has resulted from sales to the Department of
Defense (DOD) indirectly through defense prime contractors. (See Note Ten to the
Financial Statements). In most years the Company typically experiences increased
DOD related contract activity in its second and third quarters which it believes
is a result of Federal program and financial management systems. Because a
significant portion of the Company's revenue originates from sales to the
Government, directly or indirectly, it is significantly dependent upon budgeting
and appropriating activities of the Federal Government. Government contracts can
be terminated for convenience or for cause. If they are terminated for
convenience, liquidated damages are required to be paid; if terminated for
cause, such is not the case. (See Item 3 - Legal Proceedings). Termination for
convenience clauses are not usually included in commercial contracts and the
Company presently has less than ten percent of its revenue attributable to the
commercial sector. Because its Government contracts are firm fixed price, the
Company does not believe it's contracts are subject to price renegotiation on
the basis of costs incurred.
The Company has agreements with manufacturer's representatives strategically
located across the United States to find and develop manufacturing
opportunities.
The Company competes in the custom manufacturing market selling to the large
prime government contractors and to commercial customers with similar
requirements for complex and high quality products. The Company believes there
are numerous competitors, many of which are larger and better financed than
itself. However, the Company feels it enjoys a strong competitive position
because of its high quality, low burden rates, ability to deliver on time and
excellent reputation. The Company continues to improve and streamline its
products, procedures, and manufacturing techniques in order to secure an
additional portion of the commercial and defense markets.
The Company's custom manufactured products are unique and of high quality. The
Company has been highly successful in meeting certain qualifying standards,
stipulated by the purchaser, in order to compete in the bid process. These
standards are normally arduous and complex to ensure product is manufactured to
exacting standards and specifications under approved quality assurance systems.
Toward this end, the Company has implemented Statistical Process Control systems
and Total Quality Management philosophies to ensure continuing high quality and
low defect rates.
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The Company manufactures, sells, and repairs the following primary products
representative of its sales in the defense (and government) sector: F-16 Ground
Support Cables, Interface Cables for F-16 Avionics Memory Loader/Verification
System, Warming Harness Assemblies, Ejector Rack Cable Assemblies for various
fighter aircraft applications, internal F-16 Wiring Harness Assemblies, Power
Cable Assemblies for Minuteman Missile Systems, Lanyard Release Cable Assemblies
for aircraft stores release systems, and interconnect cables and harnesses for
airborne computer controlled surveillance systems. The Company provides the
following types of products to the commercial industry customers: Vehicle Wire
Harnesses, Computer Interconnect Cables, Liquid Level Sensors and communications
related wiring and cable assemblies. The Company continues to examine
diversification into new areas such as reprographics peripherals, consumer
electronics, fiber optics based interconnects and semirigid coaxial cable.
The Company has multiple sources for most of its required manufacturing
materials. In some instances the customer directs the use of sole source
suppliers. The Company believes its sources for equipment and supplies are
adequate to meet its responsibilities for the future.
The Company does not presently hold patents or have trademarked products.
The Company does not customarily maintain finished goods inventory as each job
order is manufactured individually to customer specifications.
In manufacturing, the Company's fiscal year 1995 sales to customers in aggregate
amounts exceeding 10 percent of the Company's consolidated net sales included
$1,016,805 (48%) to Lockheed Martin Aeronautical Systems, $372,075 (17%) to
Woodward-Governor, $222,924 (10%) to Codar Technology, Inc., and $207,682 (10%)
to Northrup-Grumman Corporation; remaining sales amounted to less than 10
percent to any single customer. (See Note Ten to the Financial Statements). The
loss of these major customers could have an adverse effect on the Company.
However, the Company has conducted business with all but one of these customers
for a number of years and believes its relationships are sound.
In its custom manufacturing operations, the Company has, as of December 31,
1995, funded project awards and open contracts on hand valued at revenue of $7.1
million, which includes approximately $5.2 million of uncompleted work extending
through 1998. At the corresponding time in 1994 the Company had $5.1 million of
open contracts with $4.8 million of uncompleted work of which approximately $2.0
million was unfunded.
As part of its manufacturing activities, the Company performs the engineering
design, development and testing on each of its products. While the Company has
no formal research and development department, it has expended R & D costs of
approximately $24,000, $39,000 and $87,000 in fiscal years 1995, 1994, and 1993,
respectively, targeted at specific opportunities expected to result in long term
recurring production opportunities.
The Company conducts its activities in a manner which does not currently require
securing special local, state, or Federal environmental permissions or review,
nor is any such permit or review anticipated in the future. Less than $1,000 was
spent on environmental compliance in each of the fiscal years covered by this
report.
Geographic Information Systems (GIS).
The Company's GIS operations commenced in April, 1994. GIS is the umbrella term
for what is essentially spatial data management used by government and private
sectors for analysis, evaluations and computerized precision mapping. It is a
rapidly developing industry which has emerged in the past three years from the
convergence of technological advancements and commercial access to high-
resolution satellite imagery. Federal permission to market satellite images was
not granted until March, 1994. GIS represents a quantum leap in the geographic
information industry, enabling the industry to create digitized maps far more
quickly, accurately and efficiently than previous methods, and to address a
broad variety of applications.
Estimates of today's world-wide GIS market range as high as $6 billion annually.
The success of the Company's operations in the GIS market depends largely on
being awarded large scale contracts in the markets identified above and upon the
requiring organizations having sufficient funding.
The most promising markets for GIS business at present are global areas where
widespread deregulation and privatization of government-run businesses have
created a significant market for GIS applications. The economic
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transformation and restructuring of the globe has necessitated wide-scale,
systematic geologic mapping to provide governments with an inventory for tax
assessment and collection, privatization of various industries, management of
natural resources, and other purposes.
Recently the Company determined to focus its GIS efforts on tax (or cadastral)
mapping and digital orthophotography (aerial photography with ground distortion
removed and then scanned into a computer to form a digital product). County and
municipal governments have created significant demand for resulting data to use
in the collection of taxes. It is also a necessity in the mapping and data needs
of E-911 operations, wetlands inventory and wastewater management. Further,
there is a growing awareness of its applications in transportation, real estate
sales and management, and even fast food suppliers, and other customer friendly
services for more efficient operation.
In competing in the GIS sector, the Company is aware of other larger and better
financed companies than itself. The Company believes it has identified certain
niche advantages and management capabilities which will enable it to
successfully compete.
The Company and its GIS division currently have 43 employees, one of which is in
GIS activities. The remaining total includes eleven administrative and clerical
workers, three engineers, two manufacturing managers, three inspection/test
personnel and 27 manufacturing personnel. The Company's executive and
administrative personnel also conduct the Company's marketing activities with
the support of a number of nonemployee manufacturer's representatives. None of
the Company's employees are represented by a labor union. The Company considers
its employee relations to be excellent.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
As indicated in item 1(a), above, the Company retrenched its GIS activities by
concentrating operations in a narrower niche market within the continental
United States. Therefore the results of foreign activities were not material
compared to domestic operations and, accordingly, summaries are not displayed.
ITEM 2 - PROPERTIES
The Company owns, and operates out of, a 34,000 square foot facility located on
a 9.45 acre site on State Highway 83, north of Franktown, Colorado, between
Denver and Colorado Springs. The Company maintains a monitored security system
in this facility. The Company's property is subject to a mortgage as indicated
in the financial statements included in this report. (See also Item Seven,
below, and Note Four to the Financial Statements) The facilities are suitable
and adequate for the foreseeable future.
In connection with its decision to retrench GIS activities and concentrate on a
niche market within the continental U.S., the Company determined not to renew or
extend its lease for facilities in Argentina.
ITEM 3 - LEGAL PROCEEDINGS
As previously reported, the Company received a favorable decision in May, 1992,
from the Armed Services Board of Contract Appeals on two of three cases in
longstanding litigation with the Department of Defense. Three of the Company's
contracts, totaling gross sales in excess of $10 million, were terminated in
July, 1988, by the Defense General Supply Center (DGSC) for alleged default.
DGSC is a subordinate activity of the Defense Logistics Agency (DLA).
The Company notified the Government that specifications in the first two
contracts were defective and the units could not be manufactured to the existing
engineering drawings provided by DGSC. Government procurement personnel elected
to terminate the two contracts for default. The Company believed this treatment
to be inequitable and contested the terminations; its assertions were sustained
by the ASBCA in the decision referred to above. As a result, after protracted
settlement efforts over several years, the Government and the Company recently
agreed to a final total of $5.7 million in settlement of the litigation.
The third contract required the Company to design, develop, test and manufacture
light sets to a specified schedule. Testing of the initial light assemblies was
subcontracted and conducted in an off site test facility. Failures of testing
equipment and scheduling delays (resulting from a higher priority Government
contract)
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amounting to a total of 13 days caused the Company to miss the contract
deadline for the environmental testing report by three days. Notwithstanding
Federal regulations requiring a delivery date extension equal to the
Government caused delay, the contract was terminated for default even though
the production delivery schedules remained unaffected. The Company found this
treatment to be inequitable and contested the termination.
In July, 1991, the Company and its contract attorneys presented the Company's
fact position on the third contract in hearings before the ASBCA. The appeal
and request for reconsideration before the ASBCA were unsuccessful. In
response to the unfavorable ASBCA decisions, the Company and its attorney
filed a strong appeal on October 7, 1994, with the United States Court of
Appeals for the Federal Circuit in Washington, DC. Oral arguments have been
scheduled for February 7, 1996; there is no schedule for a decision. In the
event the Government were to prevail in the action regarding the third
terminated contract, the Company would record a loss of approximately
$521,000 which could have a materially adverse effect on the Company (See
Note Two to Financial Statements and Item 7, Management Discussion and
Analysis).
The Company is engaged in various litigation matters from time to time in the
ordinary course of business. The Company believes the outcome of any such
litigation will not have a material effect on the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Since June 10, 1989, the Company's common stock has been traded on the
NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATION ("NASDAQ")
system where it now appears in the NASDAQ Small Cap Systemsm under the symbol
DCXI. Such quotations reflect interdealer prices without retail markup,
markdown, or commission, and may not necessarily represent actual
transactions. The quarterly range of high and low bid prices per share for
the past two fiscal years have been as follows:
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<CAPTION>
BID PRICE
-----------------------
QUARTER ENDED HIGH LOW
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<S> <C> <C>
September 30, 1993 1.06 .56
December 31, 1993 1.81 1.06
March 31, 1994 1.38 1.00
June 30, 1994 1.44 .88
September 30, 1994 1.75 .81
December 31, 1994 1.56 1.00
March 31, 1995 1.19 .73
June 30, 1995 .97 .63
September 30, 1995 1.63 .72
</TABLE>
(b) As of November 30, 1995, the Company believes there are approximately 3,600
beneficial owners of the Company's stock of which 2,534 are registered with the
transfer agent and the balance are held in street name.
(c) DCX has never paid a cash dividend on its common stock. The Company
currently intends to retain any earnings for use in business development.
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ITEM 6 - SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data for the Company
for the past five fiscal years and should be read in conjunction with the more
detailed consolidated financial information and management discussion and
analysis included elsewhere in this report.
FISCAL YEAR DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $ 2,181,340 $1,032,594 $764,153 $1,891,816 $2,668,875
Net Income(loss) before (1,364,841) (771,487) (794,460) (117,221) 466,468
extraordinary item
Net Income (loss) (1,364,841) (771,487) (794,460) 284,779 (1) 463,989
Net income (loss) per common
share from operations
before extraordinary
item per common share (.34) (.23) (.25) (.04) .17
Working Capital 952,817 1,755,420 2,553,195 2,592,064 2,983,358
Total Assets 4,814,932 5,415,470 6,224,194 7,409,003 6,641,935
Long Term Debt 362,897 1,721 461,458 5,419 909,353
Stockholder's Equity 2,107,854 3,227,286 3,356,031 3,880,491 3,394,150
</TABLE>
(1) The difference of $402,000 between net loss from continuing operations
and the amount of net income reflects one time interest income earned on
certain costs incurred related to settlement of the terminated contracts.
(See Item 3, above)
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION (LIQUIDITY AND CAPITAL RESOURCES)
The following discussion of liquidity and capital resources addresses the
combined requirements and sources of the Company and its subsidiaries as of
September 30, 1995.
LIQUIDITY
The favorable decision received on two of the three cases heard by the Armed
Services Board of Contract Appeals had a positive effect on the Financial
Condition of the Company. (See Note Two to the Financial Statements and Item
3, Legal Proceedings, above). As a result of and since the May, 1992,
decision in its favor, the Company has received partial payments for costs
incurred on the two contracts, profit on work accomplished and reimbursement
for additional costs and expenses resulting from the two contracts. The
Company recently agreed to a final settlement total amount of $5,734,836 with
the DLA termination contracting officer, most of which had been previously
received in the form of partial payments. The remaining amount was scheduled
for three payments, two of which were subsequently received during December,
1995, and the final payment is scheduled for January, 1996.
The third contract remains in litigation. The Company has incurred
approximately $894,000 of billable and reimbursable expenses related to the
contract which are not accrued as a receivable. An unfavorable decision on
the third contract could result in a loss estimated up to $521,000; such a
loss could have a materially adverse effect on the Company.
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As a result of the contract terminations, the Company was previously in
default with regards to the mortgage loan on its building ($335,698) and the
Small Business Administration (SBA) working capital loan ($617,855). (See Item
Three and Note Four to the Financial Statements). The SBA has extended its note
to June 3, 1996. The Company's mortgage note agreement expired October 1, 1995,
but was continued on a month to month basis as the noteholder accepted monthly
payments pending a refinancing. Subsequent to fiscal year end, the Company
executed a new first mortgage note with a lender which provides twelve months
for the Company to secure permanent financing and reduces related monthly cash
outflows by approximately $6,000.
Due to the terminations of the contracts by the Government, the Company has no
usable lines of bank credit. The Company continues to receive exceptional
cooperation from its creditors for goods and services related to the third
terminated contract who have certain portions of their claims which continue to
remain unpaid as a result of the terminations in July, 1988. Substantially all
of them have agreed orally or in writing to forbear on collection until the
contract claims are settled or the Company succeeds in other events rendering
significant cash. All of them have been paid for materials delivered and many of
them have been reimbursed for other costs and expenses related to the
terminations. If the Company were compelled to immediately satisfy these
creditors, which is considered highly unlikely in view of the favorable decision
and the substantial payments made to the creditors during the past three years,
it could conceivably have an adverse effect on the financial condition of the
Company.
All maturities of long term debt were dependent upon the resolution of the
Company's claim against the Government (See also Notes Two and Four to the
Financial Statements). Accordingly, the Company worked with the Terminated
Contract Payables creditors and with the holders of the Note Payable-Bank and
the Unsecured Notes Payable for orderly liquidation directly relating debt
reduction to cash flows resulting from portions of the settlement proposal
associated with their accounts. Consequently, the Company has liquidated all of
the terminated contract accounts payable balances for materials delivered to the
Company and, during December, 1995, the unsecured notes payable balance of
$287,826 with a discount of $82,826.
At September 30, 1995, the Company had working capital of $952,817 and its
current ratio was 1.4:1; cash balances available for use amounted to $125,844.
Compare with the prior year where working capital was $1,755,420, current ratio
was 1.8:1; and cash balances available for use amounted to $114,886. The
principal cause of the decrease in working capital was provision for losses on
accounts receivable ($330,000) related mostly to settlement with the government
on the terminated contracts and the provision for obsolete inventory ($205,594).
Changes in cash during fiscal year 1995 resulted in a net increase of $10,958 as
compared to a decrease during fiscal year (FY) 1994 of $886,176. The primary
cause was the net cash provided by financing activities of $106,139 as compared
to $639,970 cash used by operations in FY 1994. During FY 1995 net cash used by
operations was $151,517, a decrease of $488,453 from the prior year.The majority
of this difference resulted from growth in accounts payable ($317,582) and
accrued expenses ($175,760) which was offset by the purchase of additional
inventories ($474,190) to support increasing manufacturing requirements.
Accounts receivable decreases provided $348,602 of cash.
The decrease in working capital and current ratios during fiscal year 1994
compared to fiscal year 1993 resulted primarily from operating losses
experienced by the Company and expenses and start-up costs associated with the
operations in the geographical information systems activities.
Changes in cash during the fiscal year 1994 resulted in a net decrease of
$886,176 as compared to an increase during fiscal year (FY) 1993 of $893,385.
The primary cause was the net use of $639,970 in operations as compared to cash
provided by operations in FY 1993; the majority of the change was caused by the
decreased amount of payments received against receivables in FY 1994, $568,657,
as compared to $2,235,784 in FY 1993 (which mostly resulted from a lower amount
of reimbursement on the terminated contracts) and no accrued settlement amount
requirement in FY 1994, $150,000. The net change in cash used in investing
activities of $71,362 from FY 1993 to FY 1994 was caused by the acquisition of
manufacturing equipment and computer systems, $83,358, as compared to only
$4,720 during FY 93 coupled with no need to restrict additional cash for the
accrued settlement expense in FY 1994 as was done in FY 1993. The net increase
in cash used in financing activities from FY 1993 to FY 1994 was $41,192; it was
caused by a lower amount of proceeds from stock issued, $21,500, and an increase
in the reduction of long term debt, $19,384.
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The Company has, at the end of FY 1995, capital lease payment commitments
through 2002 of $168,539 which require a total annual payment of $87,518 in
fiscal year 1996. (See Note Seven to the Financial Statements) The Company
considers its facilities adequate to support anticipated sales and operations
for the next several years; accordingly, no commitments for manufacturing
facilities expansion have been entered into for the twelve months ending
September 30, 1996.
The Company does not believe that its business has been significantly impacted
during the past three years by cost inflation.
MAJOR ASSET PURCHASE AGREEMENT
As noted in Item 1(a), SUPRA, the Company entered into an agreement to purchase
substantially all the assets and liabilities of Westinghouse Landmark GIS, Inc.
("Landmark"), a wholly owned subsidiary of Westinghouse Electric Corporation.
The purchase price of $2.4 million is approximately the net book value of
Landmark and is to be paid in cash at closing on February 5, 1996. The assets to
be purchased include substantially all the inventory, accounts receivable,
equipment, furniture, business and customer records, databases, employee benefit
plans, and contracts of Landmark which have been used in its GIS business for
digital mapping projects with emphasis on GIS implementation. The Company
believes the assets will be sufficient to continue to provide services and
products to municipal and county governments and private industry implementing
GIS technology. Liabilities to be assumed include substantially all Landmark
accounts payable, progress payments and deferred income, purchase orders,
warranty claims liability and liens and security interests in the acquired
assets. The Company is not assuming any Landmark liability for borrowed money.
GOING CONCERN ISSUES
As a result of recurring losses from operations over several years, the report
of the Company's independent certified accountant includes a comment concerning
substantial doubt about the Company's ability to continue as a going concern.
(See also, Note One to the Financial Statements).
Subsequent to fiscal year end the Company agreed to a total settlement of $5.7
million on the two terminated contracts in final negotiations with the
Government. The remaining amount was scheduled in three payments, two of which
were received in December, 1995, and the third scheduled for January, 1996. The
payments received were used to liquidate terminated contract payables,
unsecured note of $287,626, reduce accounts payable and accrued expenses. A
portion of remaining working capital (materials and work in process) is
normally considered illiquid; however, progress payments on percent of
completed projects has and will produce supporting near term cashflows. (See
Liquidity, SUPRA, and Note Two to Financial Statements.)
The Company has, subsequent to audit field work, completed a refinancing of its
real property mortgage and reduced monthly mortgage payments by approximately
$6,000. This first phase provides an interim period of up to twelve months to
secure permanent refinancing which will allow the Company to position itself to
liquidate the note payable which presently matures on June 3, 1996. The
Company's mortgage financing advisor is confident of accomplishing phase two
refinancing in a timely manner.
While recurring operating losses have appeared in the financial statements since
1992, the Company also notes that gross profit which bottomed at 5.3 percent in
FY 1994 when it was impacted also by nascent GIS startup costs has grown to 17.8
percent in FY 1995 with the increased manufacturing volume while still bearing
certain GIS costs without which it would have been 24.5 percent. As noted, below
in Results of Operations, revenue for FY 1995 increased 111 percent over FY 1994
as a result of consolidation and economizing via outsourcing throughout the
defense arena. The Company expects this general trend of additional outsourcing
to continue. Management believes the result will be a further increase in gross
profit as a result of a larger production base over which to distribute fixed
overhead costs. Accordingly, manufacturing operations are expected further
increase revenues (by approximately 30 to 45 percent) and to return to
reasonable profitability during FY 1996 while generating internal cash flows
from operations. Other than Landmark, GIS activities requiring cash assistance
have been curtailed; Landmark's purchase price and initial working capital will
come from a private offering and the excess receipts will support the Company's
other needs.
CAPTIAL RESOURCES
In order to fund the Landmark asset purchase and to secure working capital
required to implement the related business plan for rapidly increasing ensuing
GIS activities and to support Company capital resource needs, the Company
previously took actions to increase its exposure to the investment banking
community by apprising relevant principals of its GIS activities, acquisition
program and other business development endeavors designed to result in
significant new business. The Company has received a number of indications of
interest for a private offering of its securities. Accordingly, the Company now
believes it can secure such financing, through the placement of equity or debt,
of which there can be no assurances. It presently has no contractual arrangement
for such an offering although it is completing required processes and
documentation for completion of a private offering.
9
<PAGE>
RESULTS OF OPERATIONS
The following discussion of results of operations include DCX, Inc. and the
consolidated statements for the GIS subsidiaries for the year ended September
30, 1995.
FISCAL YEAR 1995 COMPARED TO 1994
During fiscal year 1995 sales increased $1,148,746 or 111 percent over fiscal
year 1994 achieving consolidated sales of $2,181,340. The increase resulted from
increased outsourcing by large prime defense contractors as anticipated by the
Company's senior management. As of December 31, 1995, the Company had active
funded contracts and awarded work valued at $7.1 million with $5.2 million of
backlog to be completed; at approximately the same time a year ago, the Company
had $5.1 million of active contracts with $4.8 million of uncompleted backlog.
Cost of sales on a consolidated basis for fiscal year 1995 increased $811,487
over FY 1994 to a total of $1,789,124 for FY 1995. Of this amount, $173,678 was
attributable to GIS activities. Considered as a percent of sales, cost of sales
decreased to 82.0 percent in FY 1995 as compared to 94.7 percent in FY 1994; the
decrease results from increased volume of production and increases gross profit
from 5.3 percent in FY 1994 to 18.0 percent in FY 1995. Gross profit on
manufacturing activities amounted to $525,413 or 24.5 percent of manufacturing
revenue as compared to 7.7 percent for FY 1994 and, as expected, was a
consequence of increased manufacturing volume.
General and administrative expenses increased $531,341 in the current year over
FY 1994. The primary cause of the increase is related to recording an allowance
for uncollectible receivables ($330,000) and an increase in operating expenses
($176,023) of GIS activities over FY 1994. In addition, an increase in
consulting fees of $53,846 over FY 1994 offset by a decrease of $48,923 in
acquisition expenses and by a decrease of $27,306 in G & A salaries coupled with
increases in other G & A accounts comprised the remaining difference.
During FY 1995 the Company, as a result of its net operating loss, increased its
deferred tax valuation allowance by $496,000 (the excess of deferred tax assets
over deferred tax liabilities) over FY 1994 because it was unable to determine
that the tax benefits are more likely than not to be realized. (See Note Six to
the Financial Statements)
Non-recurring expenses were recorded during the last fiscal quarter of FY 1995
which impacted the net loss for the year. They were $300,000 for potential loss
on the settlement of the terminated contracts with the government; an adjustment
in other expenses of $287,529 to group nonrecurring expenses and the write-off
of assets abandoned, both of which were related to retrenchment of activities in
Argentina; and a reserve of $205,594 for obsolete inventories.
FISCAL YEAR 1994 COMPARED TO 1993
During the third quarter of FY 1994 the Company formed a new subsidiary to
provide services and products in the geographic information services arena (see
Item 1a, above). The subsidiary had not yet resulted in significant sales
revenue. The start-up costs and expenses are included in the discussion below.
Fiscal year 1994 experienced an increase in sales over the prior year with an
increase of $268,441, or 35 percent, resulting in FY 1994 consolidated sales of
$1,032,594 versus $764,153 for the prior year. The increase results primarily
from increased work in custom manufacturing and is a result of restructuring by
prime defense contractors to outsource more component parts to specialized
companies in order to reduce their manufacturing costs. As of December 22, 1994,
the Company had active funded contracts and awarded work amounting to $5.1
million with $4.8 million of backlog to be completed; at approximately the same
period of the prior year the Company had active contracts of $4.9 million with
$3.4 million of uncompleted backlog of which approximately $2.0 million was
unfunded.
Cost of sales on a consolidated basis increased $285,606 over FY 1993 to a total
of $977,637 for FY 1994. Factors contributing to the increased costs were
$73,656 from the new subsidiary, $67,594 of increased manufacturing overhead
primarily from increased labor and benefit costs, the write down of inventory
and increased manufacturing supplies. After factoring out the GIS sales of
$53,000 and cost of sales $73,656, cost
10
<PAGE>
of sales as a percent of sales moved from 90.6 percent in FY 1993 to 92.3
percent in FY 1994; the slight increase resulted from the remaining two
expenses indicated above. After factoring out GIS sales and costs, gross
profit for FY 1994 was 7.7 percent as compared to 9.4 percent for FY 1993,
again resulting from compensation program, write down of inventory and
manufacturing supplies.
General and administrative expenses increased $166,226 to a total of $803,890 as
compared to a total of $637,664 in FY 1993. The primary cause of the increase is
attributable to the start up of the two new subsidiaries which resulted in costs
of $139,431. Expenses related to the acquisition program totaled $48,922
compared to nil in the prior year. As a result of the issue of stock options at
less than market price of the Company's common stock pursuant to a consulting
agreement, the Company recognized $35,000 of expenses during FY 1994 (see Note
Eight to the Financial Statements) as compared to nil in the prior year.
Increased administrative compensation program and benefits costs accounted for
an increase of $16,536. Concurrently, decreases of $48,028 in research and
development costs, $30,168 in commissions and $6,138 in penalty expenses offset
these increases. Interest expense decreased $52,929 primarily from the decreased
interest rate as compared to FY 1993 and a correcting entry in that year.
During FY 1994 the company increased its deferred tax valuation allowance by
$263,190 (the excess of deferred tax assets over deferred tax liabilities) over
FY 1993 because it was unable to determine that the tax benefits are more likely
than not to be realized.
OPERATIONS OUTLOOK.
While the Company is currently heavily dependent on defense spending for its
revenues, it continues to be the opinion of management that overall demand for
contract manufacture in aerospace and defense will continue to grow. The large
prime defense contractors have been and continue to actively subcontract out
more manufacturing of component parts as a means of reducing their cost of
manufactured product. This has provided increased opportunities for the Company.
As evidence, during the past year the Company's backlog of contracts has grown
from $4.8 to over $7.1 million.
With the successful purchase of the Landmark assets and liabilities, the Company
will diversify into an industry other than defense related manufacturing.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board recently issued two pronouncements
which may affect the Company in FY 1997 (see the Financial Statements,
Summary of Accounting Policies). Statement of Financial Accounting Standard
("SFAS") No. 121 requires that long-lived assets and certain identifiable
intangibles be reported at the lower of the carrying amount or their
estimated recoverable amount; the adoption of this SFAS is not expected to
have an impact on the financial statements. SFAS 123 encourages the
accounting for stock-based employee compensation programs to be reported
within the financial statements on a fair value based method; if not,
pro-forma disclosure of net income and earnings per share as if adopted is
required. The Company has not yet determined how SFAS 123 will be adopted nor
its impact on financial statements.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are included at the end of this
Form 10-K. An index to such financial statements and applicable schedules is
contained in that separate section.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John G. Anderson 66 Chairman of the
Board of Directors
Jeanne M. Anderson* 44 President, CEO and
Director
Frederick G. Beisser 53 Chief Financial Officer
Secretary, Treasurer
and Director
Stephen Carreker 46 Director
William A. Walters# 56 Vice President, Manufacturing
Wayne A. Wilson 49 Vice President, Technical
Operations and Director
</TABLE>
NOTES: * Ms. Jeanne Anderson is the daughter of Mr. John G. Anderson.
# Mr. William A. Walters is the brother-in-law of Mr. John
G. Anderson.
MR. JOHN G. ANDERSON has served as Chairman of the Company's Board of Directors
since its inception in December of 1981, except for a brief retirement from
October, 1989, to February, 1990. On October 1, 1991, he retired from the
position of President which he had also held since 1981. Prior to founding the
Company, Mr. Anderson was employed from 1969-1981 as General Manager,
Manufacturing Operations, of OEA, Inc. From 1959-1969, Mr. Anderson was
associated with Martin Marietta Corporation, as a procurement engineer. From
1956-1959, he was a Project Engineer for Hallamore Electronics, Co. Mr. Anderson
holds a Bachelor of Science Degree in Electrical Engineering from Pacific States
University.
MS. JEANNE M. ANDERSON has been with DCX, Inc. since its inception and serves as
President and Chief Executive Officer. She was elected to that position
effective October 1, 1991, and has been a Director of the Company since 1987.
She was Secretary of the Corporation from October, 1990, until she became
President and also served as General Manager from March of 1990. Prior to her
employment with DCX, Ms. Anderson was a Medical Technician in Denver, Colorado.
Ms. Anderson holds an Associate of Science Degree in Medical Technology from
Arapahoe Community College, Littleton, CO and has completed additional studies
in psychology at the University of Colorado.
MR. FREDERICK G. BEISSER joined the Company as Chief Financial Officer in July,
1990. He was appointed to the Board of Directors in March, 1991, at which time
he became Treasurer and was appointed Secretary on October 1, 1991. Mr. Beisser
is a Colorado Certified Public Accountant. Previously he headed Budget & Cost
Analysis for the Air Force Accounting & Finance Center in Denver, Colorado, from
1985 to 1989. He held Air Force budget management positions in Europe, and
controller and accounting positions with the Air Force in the United States and
abroad. Retired with the rank of Major in 1989, he holds an MBA from Golden Gate
University in San Francisco and a BS in Business Administration from the
University of Southern Colorado at Pueblo, Colorado. In addition he has diplomas
from the Air War College and the Air Command & Staff College.
MR. STEPHEN CARREKER became a director of the Company on December 12, 1995. He
is president of the Company's GeoNova subsidiary since September, 1994. Prior to
that he was manager of the geographic information systems department of IDS/IBM
Manama, Bahrain; Vice President, Geonex Corporation, Inc., and GIS Project
Manager for Gwinnet County, Georgia. Mr. Carreker has over 20 years of domestic
and international GIS
12
<PAGE>
experience. He holds a Bachelor of Landscape Architecture from the University
of Georgia and is a Georgia-licensed landscape architect.
MR. WILLIAM A. WALTERS has served as Vice President--Manufacturing since
inception of the Company. From 1962 to 1981 he was in the construction industry
as the founder and owner of Walters Construction Company. Prior to that, from
1959 to 1962, he was an expeditor for Autonetics in their electronic operation
of Minuteman Missiles. Mr. Walters holds an Associate of Arts Degree in
Electronics from Cerritos College.
MR. WAYNE A. WILSON, the Company's Vice President--Technical Operations, has
been with the Company since inception. He has served as a director from 1986 to
1989 and from March, 1991, to the present. He heads engineering functions. Prior
to DCX, Inc. he was a test supervisor with OEA, Inc. from 1971 to 1981,
responsible for electrical, mechanical and ordnance device testing. Mr. Wilson
holds a Bachelor of Science Degree in Mechanical Engineering from Colorado State
University.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5 submitted to the Company during
and with respect to its most recent fiscal year, the Company believes all
directors, officers and any beneficial owner of more than 10 percent of its
registered shares are in compliance with Section 16(a) of the Exchange Act.
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth information concerning the cash compensation paid
and accrued by the Company for services rendered during the fiscal year ending
September 30, 1995, to the CEO. No other executive officers of the Company
had aggregate compensation exceeding $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
- ------------------------------------- ---------------------------------
Name and Other Restricted Stock All Other
Principal Annual Comp- Stock Options Compen-
Position Year Salary ($) Bonus ensation Awards (#) sation ($)*
-------- ---- ---------- ----- ------------ ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeanne M. 1995 $116,018 - $1,740
Anderson 1994 117,518 - 1,624
President 1993 113,018 - 1,200
& CEO
</TABLE>
* Amounts of All Other Compensation represent employer contribution under
the Company's 401K Retirement Savings Plan.
The Company did not grant any stock options to officers or employees during
fiscal years 1993 and 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-The-Money
Stock Options Stock Options
at FY-End (#) at FY-End ($)
Shares acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- --------------------
<S> <C> <C> <C> <C>
Jeanne M.
Anderson, 125,000/0+ $75,000/81,250
President & CEO
</TABLE>
13
<PAGE>
+ Options for 50,000 shares of DCX commons stock were granted under the
Company's 1991 Stock Option Plan on May 15, 1992 at a price of $1 7/32;
additional options for 75,000 shares were granted on April 19, 1995 under
the 1991 Plan at $ 23/32. Both grants were at fair market value; no options
have been exercised to date.
The Company does not have a long term incentive plan or a defined benefit or
actuarial form of pension plan.
Directors who are employees of the Company do not receive any additional
compensation above their full time employment compensation. Nonemployee
directors receive reimbursement of expenses incurred in carrying out their
duties; during the fiscal year the Company did not have a standard compensation
arrangement other than reimbursement of actual expenses for non-employee
directors. Mr. Anderson, a non-employee director, received $10,000.00 for his
services as a director during fiscal year 1995.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Percentages of shares held by officers and directors of the Company, as well as
those parties owning more than five (5) percent of the Company's common stock as
of the date of this proxy statement, are as follows:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
During the fiscal year the Company issued stock options for 250,000 shares in
exchange for certain services (see Note Eight to the Financial Statements).
Because the Company has not received copies of Rule 13d-1 filings under the
Exchange Act, and based on certain other information available, the Company
believes there are no parties other than management owning more than five (5)
percent of the common stock of the Company.
SECURITY OWNERSHIP OF MANAGEMENT:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TITLE OF NAME OF BENEFICIAL AMOUNT & NATURE OF PERCENT
CLASS OWNER (1) BENEFICIAL OWNERSHIP (2) OF CLASS (3)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common John G. and Elva M. Anderson 511,400 Sole 12.4
Mr. Anderson is the Chairman Voting Power
Jeanne M. Anderson (*)
Common President & Chief Executive Officer 114,000 Sole 2.8
and Director. Voting Power
Common Stephen Carreker None Nil
Director
Common Frederick G. Beisser 7,400 Sole @
Chief Financial Officer, Secretary Voting Power
and Treasurer of Board of Directors
Common Wayne A. Wilson 108,000 Sole 2.6
VP Technical Operation and Director Voting Power
Common William A. Walters (#) VP 25,000 Sole @
Manufacturing and General Manager Voting Power
All Directors and Officers
as a group (6 persons) 765,800 18.6
</TABLE>
14
<PAGE>
NOTES: * Ms. Jeanne Anderson is the daughter of Mr. John G. Anderson.
# Mr. William A. Walters is the brother-in-law of Mr. John
G. Anderson.
@ The number of shares constitutes less than one percent of
outstanding shares.
(1) The address for each of the directors of the company is
"In Care Of DCX, Inc., P.O. Box 569, Franktown, CO 80116-0569.
(2) The number of shares beneficially owned does NOT include
355,000 shares which may be acquired under Non Qualified
Stock Options held by Officers and Directors of the Company.
Such shares and management personnel holding them are: Mr.
Anderson, 50,000 shares; Ms. Anderson, 125,000; Mr.
Beisser, 60,000 shares; Mr. Wilson, 60,000 shares; and Mr.
Walters, 60,000 shares.
(3) If the options denoted, above, were exercised, Directors
and Officers would have the following percentages of
outstanding common stock: Mr. Anderson, 11.1 percent; Ms.
Anderson, 5.6 percent; Mr. Beisser, 1.6 percent; Mr.
Walters, 2.0 percent; Mr. Wilson, 4.0 percent; and as a
group, 25.1 percent.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS ARE FILED AS A
PART OF THIS REPORT:
1. Financial Statements
2. Exhibit Index
The following exhibits are filed as part of this Report:
Exhibit
Number Exhibit Page
- ------- ------- ----
1.1 *Form of Underwriting Agreement *
and Warrant
3.1 *Amended Articles of Incorporation *
and Bylaws of Douglas County
Industries, Inc.
3.2a *Amended Articles of Incorporation *
of DCX, Inc.
3.2b @Amended and Restated Articles of Incorpor- @
ation of DCX, Inc., dated July 8, 1991.
4.1 *Unit Warrant Agreement *
4.2 *Specimen Stock Certificate *
4.3 *Specimen Common Stock Purchase *
Warrant Certificate
15
<PAGE>
5.1 *Opinion of Robert D. Sichta *
10.1 *Standard Form Purchase Order *
10.2 *Standard Form Government Contract/ *
Purchase Order
10.3 *Contract between Douglas County Industries, *
Inc. and Ogden Air Logistics Center
16.1 #Resignation Letter from Wenner, #
Silvestain & Co. Oct 11, 1994
16.2 #Wenner, Silvestain & Co. #
response to SEC, Oct 17, 1994
16.3 #DCX New Release, October 18, 1994 #
24.1 *Consent of Robert D. Sichta (included *
in 5, Opinion Regarding Legality)
24.2 *Consent of Wenner, Silvestain and Co. *
24.3 *Consent of Russell D. Bean *
28.1 *Lease between John G. Anderson and *
Elva M. Anderson and Douglas County
Industries, Inc.
28.2 *Proposed Lease Purchase Agreement *
between John G. Anderson and Elva M. Ander-
son and Douglas County Industries, Inc.
28.3 *Automobile Lease *
NOTE: * Incorporated by reference from Registration Statements on Form S-18,
file no. 33-1484.
@ Incorporated by Reference from the definitive Proxy Statement, dated
May 3, 1991
# Incorporated by Reference from Form 8K and Amendment, dated October
11, 1994.
(B) REPORTS ON FORM 8-K
No reports were filed on Form 8-K by the Company during fourth quarter of the
fiscal year covered by this annual report.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DCX, INC.
Date: January 15, 1996 By: /s/ Jeanne M. Anderson Jeanne M. Anderson
------------------------ President and
Chief Executive Officer
Signature Title Date
--------- ----- ----
/s/ John G. Anderson
- ------------------------
John G. Anderson Chairman & Director January 15, 1996
/s/ Jeanne M. Anderson
- ------------------------
Jeanne M. Anderson President, CEO & Director January 15, 1996
- ------------------------
Stephen Carreker Manager GIS Operations January 15, 1996
and Director
/s/ Frederick G. Beisser
- ------------------------
Frederick G. Beisser Chief Financial Officer, January 15, 1996
Secretary, Treasurer and
Director
/s/ Wayne A. Wilson
- ------------------------
Wayne A. Wilson Vice President - Technical January 15, 1996
Operations and Director
17
<PAGE>
DCX, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets as of
September 30, 1995 and 1994 F-4 - F-5
Consolidated Statements of Operations
for the Years Ended September 30,
1995, 1994 and 1993 F-6
Consolidated Statements of Stockholders'
Equity for the Years Ended
September 30, 1995, 1994 and 1993 F-7
Consolidated Statements of Cash Flows
for the Years Ended September 30,
1995, 1994 and 1993 F-8
Summary of Accounting Policies F-9 - F-11
Notes to Consolidated Financial Statements F-12 - F-21
Schedule II -
Valuation and Qualifying Accounts F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
DCX, Inc. and Subsidiaries
Franktown, Colorado
We have audited the accompanying consolidated balance sheets of DCX, Inc. and
subsidiaries as of September 30, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years then ended. We have also audited the accompanying schedule listed
in the accompanying index. These consolidated financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements and schedule 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
and schedule. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements and schedule. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DCX, Inc.
and subsidiaries as of September 30, 1995 and 1994 and the results of their
operations and cash flows for each of the two years then ended, in conformity
with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered recurring losses
from operations, and may not be able to meet the payment of certain notes
payable within the contractual terms of the note agreements. These
conditions 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 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Denver, Colorado
January 5, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
DCX, Inc.
Franktown, Colorado
We have audited the accompanying statement of operations, stockholders'
equity and cash flows of DCX, Inc. for the year ended September 30, 1993. We
have also audited the accompanying schedule for the year ended September 30,
1993. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results the operations of DCX, Inc.
and its cash flows for the year ended September 30, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the schedule
for the year ended September 30, 1993, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note Two to the financial statements, the Company
appealed the Government action to terminate three contracts. The Company has
filed various claims against the Government relating to these contracts. A
decision, favorable to the Company, has been made on two of the contracts,
however, a final decision has not been rendered on the third contract. The
ultimate outcome of these matters cannot presently be determined.
Accordingly, no provision for such potential losses or recognition of
possible recovery from such claims has been reflected in the accompanying
financial statements.
Wenner, Silvestain and Company
Englewood, Colorado
November 22, 1993
F-3
<PAGE>
DCX, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
_______________________________________________________________________________
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 1994
_______________________________________________________________________________
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 125,844 $ 114,886
Restricted cash (Note 5) 154,985 150,000
Marketable securities, at market - 86,675
Accounts receivable, less allowance
of $330,000 and $0 for possible losses
(Notes 2 and 4) 2,061,931 2,747,765
Inventories (Notes 3 and 4) 810,922 547,426
Prepaid expenses and other 118,316 199,631
Subscriptions receivable (Note 8) 25,000 95,500
_______________________________________________________________________________
Total current assets 3,296,998 3,941,883
_______________________________________________________________________________
PROPERTY AND EQUIPMENT (NOTE 4):
Building and land 1,415,058 1,415,058
Leased assets 227,863 10,927
Furniture and equipment 236,973 250,011
Test and manufacturing equipment 159,640 159,640
_______________________________________________________________________________
2,039,534 1,835,636
Less accumulated depreciation 653,031 540,777
_______________________________________________________________________________
Net property and equipment 1,386,503 1,294,859
_______________________________________________________________________________
Other assets 131,431 178,728
_______________________________________________________________________________
$4,814,932 $5,415,470
_______________________________________________________________________________
_______________________________________________________________________________
</TABLE>
SEE ACCOMPANYING REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SUMMARY
OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
DCX, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
_______________________________________________________________________________
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 1994
_______________________________________________________________________________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Notes payable (Note 4) $ 1,026,024 $ 1,360,448
Accounts payable 588,965 271,383
Accounts payable - terminated contracts (Note 2) 373,042 342,167
Accrued expenses 206,150 62,465
Accrued litigation settlement (Note 5) 150,000 150,000
_______________________________________________________________________________
Total current liabilities 2,344,181 2,186,463
LONG-TERM DEBT, less current maturities (Note 4) 362,897 1,721
_______________________________________________________________________________
Total liabilities 2,707,078 2,188,184
_______________________________________________________________________________
CONTINGENCY (NOTE 1)
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
4,115,621 and 3,853,569 (Note 8) 4,765,540 4,538,131
Additional paid-in capital 329,384 329,384
Subscriptions receivable (Note 8) (179,000) (197,000)
Accumulated deficit (2,808,070) (1,443,229)
_______________________________________________________________________________
Total stockholders' equity 2,107,854 3,227,286
_______________________________________________________________________________
$ 4,814,932 $ 5,415,470
_______________________________________________________________________________
_______________________________________________________________________________
</TABLE>
SEE ACCOMPANYING REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SUMMARY
OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
DCX, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
______________________________________________________________________________
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1995 1994 1993
_______________________________________________________________________________________________
<S> <C> <C> <C>
NET SALES (NOTE 10) $ 2,181,340 $1,032,594 $ 764,153
COST OF SALES 1,789,124 977,637 692,031
_______________________________________________________________________________________________
Gross profit on sales 392,216 54,957 72,122
_______________________________________________________________________________________________
GENERAL AND ADMINISTRATIVE EXPENSES 1,335,231 803,890 637,664
_______________________________________________________________________________________________
LOSS FROM OPERATIONS (943,015) (748,933) (565,542)
_______________________________________________________________________________________________
Other income (expense):
Interest expense (123,428) (44,074) (97,003)
Asset writedowns (Note 11) (287,529) - -
Investment income - 29,245 19,271
Other expenses (10,869) (7,735) (1,186)
Litigation settlement and related costs (Note 5) - - (150,000)
_______________________________________________________________________________________________
TOTAL OTHER EXPENSE (421,826) (22,564) (228,918)
_______________________________________________________________________________________________
NET LOSS $ (1,364,841) $ (771,497) $ (794,460)
_______________________________________________________________________________________________
_______________________________________________________________________________________________
NET LOSS PER SHARE $ (.34) $ (.23) $ (.25)
_______________________________________________________________________________________________
_______________________________________________________________________________________________
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 3,969,464 3,328,133 3,210,336
_______________________________________________________________________________________________
_______________________________________________________________________________________________
</TABLE>
SEE ACCOMPANYING REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SUMMARY
OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
DCX, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
____________________________________________________________________________
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
YEARS ENDED SEPTEMBER 30, ---------------------- PAID-IN SUBSCRIPTIONS (ACCUMULATED
1995, 1994 AND 1993 SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT) TOTAL
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1992 2,959,569 $3,428,379 $329,384 $ - $ 122,728 $ 3,880,491
Proceeds from issuance
of stock 270,000 270,000 - - - 270,000
Net loss for the year - - - - (794,460) (794,460)
______________________________________________________________________________________________________________________
Balance, September 30, 1993 3,229,569 3,698,379 329,384 - (671,732) 3,356,031
Proceeds from issuance
of stock 400,000 559,752 - (197,000) - 362,752
Stock issued for services
(Note 8) 224,000 280,000 - - - 280,000
Net loss for the year - - - - (771,497) (771,497)
______________________________________________________________________________________________________________________
Balance, September 30, 1994 3,853,569 4,538,131 329,384 (197,000) (1,443,229) 3,227,286
Proceeds from issuance
of stock (Note 8) 250,000 218,750 - (187,500) - 31,250
Stock issued for services
(Note 8) 12,052 8,659 - - - 8,659
Proceeds from subscription
receivables (Note 8) - - - 205,500 - 205,500
Net loss for the year - - - - (1,364,841) (1,364,841)
______________________________________________________________________________________________________________________
Balance, September 30, 1995 4,115,621 $4,765,540 $329,384 $(179,000) $(2,808,070) $ 2,107,854
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
</TABLE>
SEE ACCOMPANYING REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SUMMARY
OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
DCX, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
____________________________________________________________________________
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1995 1994 1993
_____________________________________________________________________________________________
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,364,841) $ (771,497) $ (794,460)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Asset writedowns 251,347 - -
Provision for losses on accounts
receivable 330,000 - -
Stock issued for services 8,659 - -
Depreciation and amortization 128,302 86,059 47,070
Changes in operating assets and liabilities:
Accounts receivable 348,602 568,657 2,235,784
Inventories (473,990) (155,770) (68,302)
Other assets 127,062 (98,791) 33,111
Accounts payable 317,582 (255,050) (402,430)
Accrued expenses 175,760 (13,578) (31,012)
Accrued settlement - - 150,000
____________________________________________________________________________________________
Net cash provided by (used in) operating
activities (151,517) (639,970) 1,169,761
____________________________________________________________________________________________
INVESTING ACTIVITIES:
Acquisition of property and equipment (25,354) (83,358) (4,720)
Proceeds on sale of marketable securities 86,675 - -
Restricted cash (4,985) - (150,000)
____________________________________________________________________________________________
Net cash provided by (used in) investing
activities 56,336 (83,358) (154,720)
____________________________________________________________________________________________
FINANCING ACTIVITIES:
Payments on debt (201,111) (411,348) (391,656)
Proceeds from the issuance of common stock 307,250 248,500 270,000
___________________________________________________________________________________________
Net cash provided by (used in) financing
activities 106,139 (162,848) (121,656)
____________________________________________________________________________________________
NET INCREASE (DECREASE) IN CASH 10,958 (886,176) 893,385
CASH AND CASH EQUIVALENTS, beginning of year 114,886 1,001,062 107,677
____________________________________________________________________________________________
CASH AND CASH EQUIVALENTS, end of year $ 125,844 $ 114,886 $ 1,001,062
____________________________________________________________________________________________
____________________________________________________________________________________________
</TABLE>
SEE ACCOMPANYING REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, SUMMARY
OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
DCX, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
_____________________________________________________________________________
ORGANIZATION AND BUSINESS
These consolidated financial statements include the accounts of DCX, Inc. and
those of its wholly-owned subsidiaries, GeoStars International, Inc. and
GeoNova US, Inc. ("GeoNova"), d/b/a GeoNova International, Inc.,
(collectively the "Company"). DCX, Inc. provides services and products to
aerospace, aviation, military, and commercial industries. DCX, Inc. is
currently engaged in the engineering design, development, testing, and
manufacturing of electronic and electro-mechanical devices and assemblies for
use in the missile and aerospace industries, as well as the manufacturing of
wire harnesses and cable assemblies for use by commercial computer and
communications industries and the U.S. Government. GeoNova engages in the
geographic information systems/services (GIS).
For financial information relating to industry segments see Part I Item 1(b)
"Financial Information about Industry Segments" in the Securities and
Exchange Commission September 30, 1995 Form 10-K for the Company.
All intercompany balances and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months
or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist of equity securities and are carried at quoted
market value, realized and unrealized gains and losses are recorded in
investment income as they arise. The securities are classified as trading
under SFAS No. 115.
INVENTORIES
Inventories, other than inventoried costs relating to long-term contracts and
programs, are stated at the lower of cost or market by specific
identification. Inventoried costs relating to long-term contracts and
programs are stated at the actual production costs, including factory
overhead and other related non-recurring costs, incurred to date reduced by
amounts identified with revenue recognized as progress is completed. In
accordance with industry practice, such inventoried costs are recorded in
accounts receivable-unbilled and include amounts which are not expected to be
realized within one year.
F-9
<PAGE>
DCX, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
_____________________________________________________________________________
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost. Depreciation is provided on
property and equipment by charging against earnings, amounts sufficient to
amortize the costs of the assets over their estimated useful lives. The
ranges of estimated useful lives in computing depreciation and amortization
are as follows:
____________________________________________________________________________
Building 31 years
Leased assets Life of lease
Furniture and equipment 5 to 7 years
Test and manufacturing equipment 5 to 7 years
____________________________________________________________________________
____________________________________________________________________________
Depreciation was computed principally on an accelerated method.
REVENUE RECOGNITION
The estimated sales value of performance under government fixed-price
contracts in process is recognized under the percentage of completion method
of accounting whereunder the estimated sales value is determined on the basis
of physical completion to date (the total contract amount multiplied by
percent of performance to date less sales value recognized in previous
periods). Estimated losses on contracts are recorded when identified.
TAXES ON INCOME
The Company accounts for income taxes under SFAS No. 109. Deferred income
taxes result from temporary differences. Temporary differences are
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and totalled
approximately $24,000, $39,000 and $87,000 for the years ended September 30,
1995, 1994 and 1993.
NET LOSS PER SHARE
Net loss per common share is based on the weighted average number of shares
outstanding during each period presented. Options to purchase stock are
included as common stock equivalents, when dilutive.
CONCENTRATIONS OF CREDIT RISK
The Company provides its products as a prime contractor and sub-contractor to
various entities in the aerospace, aviation, and military industries, with
most of its products being utilized by the U.S. Government as well as by
major defense contractors. The Company grants credit to its customers in
these industries and, therefore, a substantial portion of its debtors'
ability to honor the contracts is dependent upon the defense economic sector.
F-10
<PAGE>
DCX, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
_____________________________________________________________________________
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets" and SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amount or
their estimated recoverable amount and the adoption of this statement by the
Company is not expected to have an impact on the financial statements. SFAS
No. 123 encourages the accounting for stock-based employee compensation
programs to be reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the statement
requires pro-forma disclosure of net income and earnings per share as if the
fair value based method had been adopted. The Company has not yet determined
how SFAS No. 123 will be adopted nor its impact on the financial statements.
Both statements are effective for fiscal years beginning after December 15,
1995.
RECLASSIFICATIONS
Certain items included in the prior years' financial statements have been
reclassified to conform to the current presentation.
F-11
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________________________
1. CONTINUED EXISTENCE
As reflected in the accompanying financial statements, the Company incurred
net losses from operations of $943,000, $749,000 and $566,000 for the years
ended September 30, 1995, 1994 and 1993. A $335,698 note payable matured
October 10, 1995 and the Company continued to make monthly payments on the
note while in the process of securing refinancing, and a separate note
payable in the amount of $617,855 is scheduled to mature in June 1996. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern.
Subsequent to September 30, 1995, the Company received a commitment to
refinance the note payable originally due October 10, 1995 and is negotiating
to refinance and extend the maturity date of the $617,855 note payable. At
September 30, 1995 the Company had working capital of $952,817. A significant
portion of the Company's working capital is comprised of certain assets that
in the normal course of business are not readily convertible into liquid
assets. In December 1995 the Company received approximately $1,200,000 in
partial settlement of a terminated contract receivable (as described in Note
2). Such proceeds were utilized to make payments on accounts payable,
accounts payable-terminated contracts, unsecured notes of $287,826 and other
accrued expenses. Management plans also include the acquisition of
Westinghouse Landmark GIS, Inc., a subsidiary of a Westinghouse Electric
Corp., through the proceeds of a private placement offering which may provide
additional liquidity and more stable operating results. The ultimate results
of these efforts cannot be determined at the present time.
2. ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
<TABLE>
<CAPTION>
1995 1994
_____________________________________________________________________________
<S> <C> <C>
LONG-TERM CONTRACTS:
U.S. Government - Prime
and subcontracts:
Amounts billed $ 192,769 $ 42,098
Recoverable costs and accrued profit on progress
completed - not billed 209,0385 80,311
Unrecovered costs and estimated profits subject
to future negotiation - terminated contracts (a) 1,702,009 2,062,550
_____________________________________________________________________________
Total U.S. Government 2,103,816 2,684,959
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
F-12
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________________________
<TABLE>
<S> <C> <C>
COMMERCIAL:
Amounts billed 165,434 62,093
Recoverable cost and accrued profit on progress
completed-not billed 115,973 713
_____________________________________________________________________________
Total commercial 281,407 62,806
_____________________________________________________________________________
Other 6,708 -
Less provision for losses 330,000 -
_____________________________________________________________________________
Total accounts receivable $2,061,931 $2,747,765
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
Recoverable costs and accrued profits not billed will be billed on the basis
of contract terms and delivery schedules.
(a) The unrecovered costs and estimated profits subject to future negotiation
represent claims asserted against the Department of Defense for contracts
terminated by the Government. Through September 30, 1995, the Company
has received partial payments on these contracts of approximately
$3,842,000. The Company has $1,702,009, less a $300,000 allowance for
potential losses, recorded as a terminated contract receivable at September
30, 1995 on these contracts, representing cost and reimbursable expenses
they are owed by the Government. Subsequent to September 30, 1995, a
preliminary settlement was reached on these matters, subject to final
approval. The Government paid the Company approximately $1,200,000 in
December 1995, with final payments expected in the second quarter of the
Company's fiscal year.
The Armed Services Board of Contract Appeals ("ASBCA") affirmed the
Government's termination for default on a third contract and the Company
filed an appeal of that decision with the United States Court of Appeals on
October 7, 1994. The Company anticipates a favorable outcome to this appeal.
The Company has incurred approximately $894,000 in billable and reimbursable
costs and expenses on their third contract which have not been recorded as a
receivable from the Government. If the Company prevails on its appeal of the
decision on the third contract, the Company would record additional income of
approximately $894,000. In the event the Company's appeal on the third
contract is not sustained, the Company could incur a loss of approximately
$521,000. The Company believes that they will prevail in converting the
third contract to a termination for the convenience of the Government status.
F-13
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________________________
As a result of the contract terminations, the Company was in default on its
loan agreement which is collateralized by the contracts. The Company entered
into an agreement with the bank which amended the debt agreement to include
additional restrictive covenants to the debt agreement.
The Company has held meetings with and developed understandings with various
creditors pertaining to the terminated contracts, including creditors who
initiated collection procedures to recover amounts due under the contracts.
The Company has entered into agreements with various creditors to defer
payment until resolution of the claim against the Government.
3. INVENTORIES
Inventories are stated at the lower of cost or market by specific
identification and consist of:
<TABLE>
<CAPTION>
1995 1994
_____________________________________________________________________________
<S> <C> <C>
Raw materials $ 763,585 $547,426
Work in process 277,731 -
_____________________________________________________________________________
1,041,316 547,426
Reserve for obsolescence (230,394) -
_____________________________________________________________________________
Total inventory $ 810,922 $547,426
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
F-14
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________________________
4. NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
_____________________________________________________________________________
<S> <C> <C>
Note payable in monthly installments of $2,000 per
month beginning December 1991 interest at 10.5%,
collateralized by accounts receivable, inventory,
second deed of trust on building, property and
equipment and contract rights, maturing June 3,
1996 (See Note 2). $ 617,855 $ 617,855
Note payable in monthly installments of $12,500,
including interest at prime plus 3% (10.5% at
September 30, 1995) with a ceiling of 11.5%,
collateralized by a deed of trust on a building
and assignment of a lease, which was due October
10, 1995. (a) 335,698 453,305
Unsecured notes payable with interest accrued based
on rates determined by the Government under the
Renegotiation Act, 7% at September 30, 1995. (b) 287,826 287,826
Capital lease obligation (Note 7) 147,542 3,183
_____________________________________________________________________________
1,388,921 1,362,169
Less current maturities 1,026,024 1,360,448
_____________________________________________________________________________
Long-term debt less current maturities $ 362,897 $ 1,721
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
F-15
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________________________
(a) In January 1996, the Company received a commitment which will replace the
$335,698 note payable. The terms of the new financing include monthly
installments of $5,912 with an annual interest rate of 13%. The note matures
in January 1997. The terms of the new financing have been reflected on the
accompanying September 30, 1995 consolidated balance sheet.
(b) In December 1995, settlement of this note was made and required a cash
payment of $205,000. The gain on forgiven debt of $82,826 will be recorded
in fiscal 1996.
5. LITIGATION
ACCRUED SETTLEMENT
In 1993 the Company posted a bond of $150,000 to indemnify a Director of DCX,
Inc. due to litigation arising from a dispute with a terminated employee
(plaintiff). A judgement for the plaintiff was originally granted for
$96,000. The bond of $150,000 was posted to cover the original judgement
plus statutory interest from the date of occurrence in 1989 while the matter
was heard by the Court of Appeals. In October 1995, the Company's petition
for the case to be heard by the Colorado Supreme Court was denied and the
bond was paid to the plaintiff.
OTHER LITIGATION
The Company is engaged in various litigation matters from time to time in the
ordinary course of business. In the opinion of management, the outcome of
any such litigation will not materially affect the financial position or
results of operations of the Company.
6. TAXES ON INCOME
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
_____________________________________________________________________________
<S> <C> <C> <C>
DEFERRED BENEFIT:
Federal $ 452,000 $240,000 $271,000
State 44,000 23,000 27,000
_____________________________________________________________________________
496,000 263,000 298,000
Valuation allowance (496,000) (263,000) (298,000)
_____________________________________________________________________________
$ - $ - $ -
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
F-16
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________________________
A reconciliation of the effective tax rates and the statutory U.S. federal
income tax rates is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
_____________________________________________________________________________
<S> <C> <C> <C>
Percent of pre-tax loss at U.S. federal
statutory rates (34.0)% (34.0)% (34.0)%
State income tax benefit, net of federal
tax amount (3.3) (3.1) (3.3)
Expenses not deductible for taxes 1.2 2.5 1.8
Increase in deferred tax asset valuation
allowance 36.1 34.6 35.5
_____________________________________________________________________________
Effective tax rate - % - % - %
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
Temporary differences that give rise to a significant portion of the deferred
tax asset are as follows:
<TABLE>
<CAPTION>
1995 1994
_____________________________________________________________________________
<S> <C> <C>
Net operating loss carryforward $ 766,000 $ 577,000
Allowance for doubtful accounts 123,000 -
Inventory, obsolescence reserve 86,000 9,000
Accrued settlement 56,000 56,000
Capital loss carryover 15,000 -
Other 11,000 9,000
_____________________________________________________________________________
Total gross deferred tax assets 1,057,000 651,000
Valuation allowance (1,057,000) (561,000)
_____________________________________________________________________________
Net deferred tax asset - 90,000
Deferred tax liability - deferred
compensation expense - (90,000)
_____________________________________________________________________________
Net deferred taxes $ - $ -
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
F-17
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
A valuation allowance equal to the net deferred tax asset has been recorded,
as management of the Company has not been able to determine that it is more
likely than not that the deferred tax assets will be realized.
At September 30, 1995, the Company had net operating loss carryforwards of
approximately $2,053,000 with expirations through 2010.
7. LEASES
The Company leases various equipment under capital leases that expire through
June 2000. The present value of future minimum capital lease payments at
September 30, 1995 are as follows:
<TABLE>
_______________________________________________________________________________
<S> <C>
1996 $ 87,518
1997 55,101
1998 20,237
1999 3,489
2000 2,334
_______________________________________________________________________________
Total minimum lease payments 168,679
Less amounts representing interest 21,137
_______________________________________________________________________________
Present value of net minimum lease payment 147,542
Less capital lease obligation, current 74,645
_______________________________________________________________________________
Capital lease obligation, noncurrent $ 72,897
_______________________________________________________________________________
_______________________________________________________________________________
</TABLE>
8. COMMON STOCK TRANSACTIONS
In June 1994, the Company issued stock options to an individual to purchase
up to 324,000 shares of its common stock at exercise prices per share ranging
from $.67 to $1.25. In July 1994, the Company issued stock options to
purchase 300,000 shares of its common stock to the same individual at
exercise prices per share from $1.00 to $1.75. All options were exercised
prior to September 30, 1994.
F-18
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
As consideration for future service to be performed over 3 years by the
recipient of the stock options, the exercise price on a portion of these
stock options was below the fair market value of the stock on the date the
options were granted. Accordingly, the Company recorded $148,750 in deferred
charges for future services. In addition, the Company waived the exercise
price on 224,000 shares under the stock option and recorded deferred charges
for future services of $150,000. In March 1995, the Company issued options
to purchase 250,000 shares to the same individual at an exercise price of
$.75 per share. The options were exercised in April 1995. The Company
recorded $31,250 in deferred changes for future services. Services by the
recipient are to be provided over a 3 year term. Accordingly, the Company is
amortizing deferred compensation charges on a straight line basis over 36
months. Amortization of approximately $100,000 and $35,000 was recorded
during in the years ended September 30, 1995 and 1994.
The Company issued 12,052 shares valued at $8,659 to two vendors to fulfill
payable obligations in June 1995.
The Company collected $205,500 of the amount classified as subscriptions
receivable during the year ended September 30, 1995. Subsequent to September
30, 1995 $25,000 was received prior to January 5, 1996 and has been
classified as an asset on the accompanying consolidated balance sheet.
9. EMPLOYEE BENEFIT PLANS
401(K) PLAN
In January 1992, the Company established a Section 401(k) profit sharing plan
covering substantially all employees. Participants in the plan may
contribute up to 15% of their compensation, subject to certain limitations.
Under the plan, the Company makes matching contributions equal to 25% of the
participants elected deferred contribution up to a maximum of 6% of
compensation. Company matching contributions vest ratably over 5 years.
Additional contributions may be made at the Company's discretion based upon
the Company's performance. Total Company contributions under the plan were
approximately $8,900, $8,700 and $7,500 in 1995, 1994 and 1993.
F-19
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
STOCK OPTIONS
The Company's Board of Directors have reserved 300,000 and 750,000 shares
under two stock option plans (1991 and 1995 respectively). The Company
grants options under the Plan in accordance with the determinations made by
the Option Committee. The Option Committee will, at its discretion,
determine individuals to be granted options, the time or times at which
options shall be granted, the number of shares subject to each option and the
manner in which options may be exercised. The option price shall be the fair
market value on the date of the grant and expire five years subsequent to the
date of grant.
1991 PLAN
In May 1992, the Company issued options for the purchase of 140,000 shares at
$1.22 per share. Of the total issued, 125,000 were issued to officers and
directors. In February 1995, 20,000 options were cancelled. Options to
purchase 175,000 shares at $.71875 were issued to officers of the Company in
April 1995. To date, none of these options have been exercised.
1995 PLAN
In April 1995, the Company issued options to purchase 269,000 shares at
$.71875 per share, of the total issued, 60,000 were issued to an officer. To
date none of these options have been exercised.
10. MAJOR CUSTOMERS
The Company has historically derived significant revenue from contract
services from a few customers. During the year ended September 30, 1995
sales to four customers accounted for 48%, 17%, 10% and 10% of total sales.
During the year ended September 30, 1994, the Company derived 59% and 15% of
total revenue from two customers. For the year ended September 30, 1993,
sales to one customer represented 74% of total revenue. The majority of all
sales are as Government Prime or Sub-contractors.
F-20
<PAGE>
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
11. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
During the quarter ended September 30, 1995, the Company recorded significant
charges affecting various accounts. The Company recorded an allowance for
potential losses of $300,000 on the unrecovered costs and estimated profits
subject to future negotiation-terminated contracts. The Company also
determined that certain items in its inventory may not be realizable.
Accordingly, a reserve for obsolescence of $205,594 was recorded. As of
September 30, 1995, the Company decided to curtail certain activities being
performed in Argentina back to the Company's U.S. facilities. As such, the
Company recorded an adjustment of $287,529 as an other expense. None of these
adjustments effect prior quarters.
12. SUBSEQUENT EVENT
On January 5, 1996 the Company entered into a definitive agreement to
purchase the assets of Westinghouse Landmark GIS, Inc., a subsidiary of
Westinghouse Electric Corp.
13. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
1995 1994 1993
_______________________________________________________________________________
<S> <C> <C> <C>
Common stock sold for
subscriptions receivable $187,500 $292,500 $ -
_______________________________________________________________________________
_______________________________________________________________________________
Acquisition of equipment
under capital leases $227,863 $ - $ -
_______________________________________________________________________________
_______________________________________________________________________________
Common stock issued for
services and debt $ 8,659 $298,750 $ -
_______________________________________________________________________________
_______________________________________________________________________________
Liabilities assumed in
acquisition of equipment $ - $ - $14,749
_______________________________________________________________________________
_______________________________________________________________________________
Cash paid for interest $ 72,000 $ 24,000 $24,000
_______________________________________________________________________________
_______________________________________________________________________________
</TABLE>
F-21
<PAGE>
DCX, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
_______________________________________________________________________________
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
_______________________________________________________________________________
<S> <C> <C> <C> <C>
Year Ended September 30, 1993 $ - $ - $ - $ -
Year Ended September 30, 1994 - - - -
Year Ended September 30, 1995 - 330,000 - 330,000
_______________________________________________________________________________
_______________________________________________________________________________
</TABLE>
ALLOWANCE FOR OBSOLESCENCE OF INVENTORY
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
_______________________________________________________________________________
<S> <C> <C> <C> <C>
Year Ended September 30, 1993 $ - $ - $ - $ -
Year Ended September 30, 1994 - 25,000 - 25,000
Year Ended September 30, 1995 - 205,594 (200) 230,394
_______________________________________________________________________________
_______________________________________________________________________________
</TABLE>
F-22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 280,829<F1>
<SECURITIES> 0
<RECEIVABLES> 261,931
<ALLOWANCES> 0
<INVENTORY> 810,922
<CURRENT-ASSETS> 3,296,998
<PP&E> 2,039,534
<DEPRECIATION> 653,031
<TOTAL-ASSETS> 4,814,932
<CURRENT-LIABILITIES> 2,344,181
<BONDS> 362,897
0
0
<COMMON> 4,765,540
<OTHER-SE> 2,657,686
<TOTAL-LIABILITY-AND-EQUITY> 4,814,932
<SALES> 2,181,340
<TOTAL-REVENUES> 2,181,340
<CGS> 1,789,124
<TOTAL-COSTS> 1,789,124
<OTHER-EXPENSES> 298,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,428
<INCOME-PRETAX> (1,364,841)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,364,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,364,841)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
<FN>
<F1>RESTRICTED CASH WAS $154,985.
</FN>
</TABLE>
