UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-14273
DCX, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 84-0868815
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3002 N. State Highway 83, Franktown, Colorado 80115-0569
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(Address of principal executive offices)
(Zip Code)
(303) 688-6070
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
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4,450,409 Common Shares were outstanding as of December 31, 1996.
Number of pages in this report is 10.
<PAGE>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
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DCX, Inc. and Subsidiaries
Condensed and Consolidated Balance Sheets
December 31 September 30
1996 1996
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(Unaudited) Audited
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<S> <C> <C>
Assets
Current:
Cash and Cash equivalents $ 90,928 $ 209,637
Accounts receivable 1,313,498 995,040
Inventories 887,099 1,103,672
Prepaid expenses 127,466 195,832
- -------------------------------------------------------------------------------------
Total current assets 2,418,991 2,508,181
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Property and equipment:
At cost 2,039,534 2,039,534
Less: accumulated depreciation (790,210) (767,233)
- -------------------------------------------------------------------------------------
Net property and equipment 1,249,324 1,272,301
Other assets 44,000 44,000
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$ 3,712,315 $ 3,820,482
=====================================================================================
See accompanying summary of accounting policies and notes tofinancial statements
2
</TABLE>
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<TABLE>
<CAPTION>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Balance Sheets
December 31 September 30
1996 1996
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(Unaudited) (Audited)
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<S> <C> <C>
Liabilities and Stockholders' Equity
Current:
Notes payable $1,267,146 $1,279,623
Accounts payable 215,480 494,646
Accounts payable - terminated contracts 0 66,377
Accrued expenses 55,154 85,759
Accrued litigation settlement 521,000 521,000
- ----------------------------------------------------------------------------------------------------
Total current liabilities 2,058,780 2,447,405
Long-term debt, less current maturities 24,060 24,060
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Total liabilities 2,082,840 2,471,465
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Commitments and Contingencies (Note 4, below,
and Note 1 to Form 10-KSB, September 30, 1996)
Stockholders' Equity:
Preferred stock, $.001 par value, 20,000,000 shares
authorized, Series A, 6% Cumulative
Convertible Redeemable
Preferred Stock; 1,000,000 authorized,
500 issued and outstanding (Note 6) 1 0
Capital paid in excess of par value on preferred stock 449,999 0
Common stock, no par value, 2,000,000,000 shares
authorized; shares issued and
outstanding, 4,450,409 and 4,434,109 at
December 31, 1996 and September 30, 1996,
respectively. 5,072,072 5,060,357
Subscriptions receivable (179,000) (179,000)
Additional paid-in capital 329,384 329,384
Accumulated deficit (4,042,981) (3,861,724)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 1,629,475 1,349,017
- -----------------------------------------------------------------------------------------------------
$ 3,712,315 $ 3,820,482
=====================================================================================================
See accompanying summary of accounting policies and notes to financial statements
</TABLE>
3
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<CAPTION>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Statements of Operations
(Unaudited)
Three months ended
December 31
1996 1995
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<S> <C> <C>
Net sales $ 865,112 $ 904,311
Cost of sales 690,654 608,013
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Gross profit on sales 174,458 296,298
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General and administrative expenses 324,720 232,698
Loss from operations (150,262) 63,600
Other income (expense):
Interest expense (30,150) ( 37,222)
Investment and other income 1,071 10,357
Other expense (1,916) 0
Forgiveness of debt 0 87,826
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Net loss $ (181,257) $ 124,561
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Net income (loss) per share $ (.04) $ .03
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Weighted average number of shares of
common stock outstanding 4,447,692 4,105,121
===============================================================================================
See accompanying summary of accounting policies and notes to financial statements
4
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<PAGE>
<TABLE>
<CAPTION>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Statements of Cash Flows
(Unaudited)
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For the Three-Month Periods Ended December 31, 1996 1995
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<S> <C> <C>
Operating activities:
Net income (loss) $ (181,257) $ 124,561
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 23,977 21,552
(Increase) decrease in accounts receivable (318,458) 1,147,243
(Increase) decrease in inventory 216,573 (393,924)
(Increase) decrease in prepaid expenses 68,366 (5,358)
Decrease in other assets 0 15,000
Decrease in accounts payable (345,543) (226,006)
Decrease in other liabilities (30,605) (81,242)
Decrease in litigation settlement liability 0 (150,000)
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Net cash provided by (used in) operating activities (567,947) 451,826
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Investing activities:
Acquisition of property and equipment 0 6,999
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Net cash provided by (used in) investing activities 0 6,999
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Financing activities:
Payments on long-term debt, net (12,477) (248,993)
Issuance of common stock 11,715 0
Issuance of convertible preferred stock 450,000 0
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Net cash provided by (used in) financing activities 449,238 (248,993)
Net increase (decrease) in cash (118,709) 209,832
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Cash and cash equivalents, beginning of period $ 209,637 $ 125,844
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Cash and cash equivalents, end of period $ 90,928 $ 335,676
============================================================================================
See accompanying summary of accounting policies and notes to financial statements
5
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<PAGE>
DCX, INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by DCX, INC. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. DCX, INC. believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position as of December 31,
1996, the consolidated results of its operations for the three-periods ended
December 31, 1996, and 1995 and statements of cash flows for the three-month
periods then ended.
The accounting policies followed by the Company are set forth in the annual
report of September 30, 1996, filed on Form 10-KSB, and the audited consolidated
financial statements therein with the accompanying notes thereto. While
management believes the procedures followed in preparing these consolidated
financial statements are reasonable, the accuracy of the amounts are in some
respects dependent upon the facts that will exist, and procedures that will be
accomplished by DCX, INC. later in the year.
The consolidated results of operations for the three-month period ended December
31, 1996, are not necessarily indicative of the results to be expected for the
full year ending September 30, 1997.
(2) Accounts Receivable
Accounts receivable contain amounts computed under the cost-to-cost method to
determine percentage of completion as described in the Form 10-KSB for September
30, 1996.
(3) Provision for Income Taxes
At the beginning of the fiscal year the Company had net operating loss
carryforwards of $2,663,000 with expirations through 2011. At December 31, 1996,
the amount of the net operating loss carryforward balance is estimated at
$2,794,291. The Company expects to incur a minimal amount of alternative minimum
tax for the fiscal year. Since the Company is unable to determine that deferred
tax assets exceeding tax liabilities are more likely than not to be realized, it
will record a valuation allowance equal to the excess deferred tax assets at
fiscal year end.
6
<PAGE>
(4) Litigation
Claim for Breach of Contract. Following the termination of merger discussions
between the Company and an unrelated company, Airtech International Corporation
("Airtech"), the Company filed a claim for resulting damages of approximately
$400,000. During January, 1997, Airtech filed an answer to the claim denying the
Company's claim and counter claiming for breach of contract, fraud and
negligence claiming damages exceeding $27 million. The parties have agreed to
dismiss their claims with prejudice and have released any claims.
Terminated Contracts. As reported in the Form 10-KSB for September 30, 1995, and
1996, the Company and the Defense Logistics Agency (DLA) agreed to a final
settlement in November, 1995, on two of three terminated contracts. The last
partial payment, therefor, was received in January, 1996.
A third contract with DLA required the Company to design, develop test and
manufacture light sets to a specified schedule. Testing of the lights was
subcontracted; scheduling delays caused the Company to miss a required
submission date for the testing and resulted in termination of the contract in
1988. Vigorous litigation asserting the delay was government caused were pursued
to the United States Supreme Court. The Company's petition for certiorari was
denied in November, 1996. The Company recorded a reserve of $521,000 for the
loss in June, 1996; which is believed to be sufficient for the possible
reprocurement costs related to the difference between the Company's contract
price and the price incurred by DLA from the next lowest vendor as provided for
in the Federal Acquisition Regulations . The Company has filed with the Armed
Services Board of Appeals an appeal of the reprocurement costs. No hearing date
has been set. (See also Item 3, Legal Matters, and Note 5, Litigation, to the
financial statements in Form 10-KSB for September 30, 1996.)
(5) Lease Obligations
The Company leases various equipment under capital leases that expire through
June 2000 as noted in Note 7 to the Financial Statements in Form 10-KSB,
September 30, 1996.
(6) Subsequent Events
Key Man Life Insurance Proceeds. On January 7, 1997, the Company recorded
$400,000 of accounts receivable related to the proceeds of two Company owned key
man life insurance policies on a director of the Company. Proceeds of $250,000
on one of the policies have been received; the Company is completing formalities
related to the second policy in order to secure the proceeds of $150,000.
Convertible Preferred Stock. On January 23, 1997, the holder of Series A, 6%
Cumulative Convertible Redeemable Preferred Stock converted 100 shares into
common stock in accordance with the issue agreement. Accordingly, the Company
issued 123,308 shares of its common stock in exchange.
7
<PAGE>
PART I, ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition:
Liquidity. Cash and marketable securities decreased $118,709 to $90,928 from
$335,676 at September 30, 1996, as a result of payments made on accounts payable
and a net operating loss.
The Company presently has working capital of $360,211 as compared to $1,090,926
at December 31, 1995, and to $60,776 at the beginning of the fiscal year. The
primary causes for the decrease of $680,715 from a year ago are payments
reducing accounts payable by $151,979 and the booking of an accrual for
litigation settlement related to the adverse decision on the third terminated
contract in the amount of $521,000
The Company's current ratio, the ratio of total current assets to total current
liabilities, decreased to 1.17:1 which compares to 1.73:1 a year ago and is
improved over 1.02:1 at September 30, 1996.
Subsequent to the current quarter, the Company booked accounts receivable of
$400,000 related to two key man life insurance policies carried on its founder
who passed away in January, 1997. Proceeds of $250,000 have been received; the
Company is completing formalities related to the second policy and expects to
receive the proceeds during its second quarter.
The Company's liquidity could be affected by the denial of certiorari at the
United States Supreme Court on assertions related to the third terminated
contract. As a result of the denial, the government is entitled to recoup the
difference in price between the Company's contract award which was terminated
for default and the price to the government of the vendor who eventually
supplied the product. The Company believes the reserve for litigation settlement
($521,000) is sufficient; however, the Company does not have adequate cash to
satisfy an immediate demand. Further, the Company has reinstated an appeal of
the propriety of the reprocurement costs in the Armed Services Board of Contract
Appeals which places such demand in abeyance pending the outcome of the appeal.
No hearing date has been scheduled to date. (See also, Note 4, Litigation,
supra; and Item One, Legal Proceedings, infra.)
The Company's liquidity could be adversely affected by the balloon payments
required at June 3, 1997 on the notes held by the Small Business Adminstration.
While the Company expects to secure financing for consolidation of these notes
and its first mortgage note into one long-term instrument, there can be no
guarantee the funding will forthcoming. (See also Note 4 to the Financial
Statements in Form 10-KSB for September 30, 1996)
Capital Resources. During its first fiscal quarter the Company sold a total of
500 shares of convertible preferred stock in a private offshore transaction to
two non-US funds; the transaction resulted in net funding of $450,000.
The Company intends to apply the forthcoming key man life insurance proceeds of
$150,000 to its working capital requirements.
The Company's long-term liquidity requirements may be significant in order to
implement its plans. While confident the funds will be secured, there can be no
guarantee the efforts will be successful.
Results of Operations:
First Quarter of Fiscal Year 1997
Net sales of $865,112 were slightly lower than sales of $904,311 during the
first fiscal quarter of the previous year. Gross profit of $174,458 or 20.2 % of
sales was down markedly from the prior year. Cost of sales increased 13.6% over
the prior year; a portion of this resulted from increased staffing to support
growing production related activities.
General and administrative expenses of $324,720 were up somewhat over the prior
year's period as a result of increases to legal fees, consulting fee
amortization and manufacturer's representative commissions paid during the
8
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quarter. In addition, the Company increased the allowance for obselete
inventories by $40,000 and wrote off accounts receivable of $10,000. These were
offset by a decrease of $45,000 in acquisition related expenses. On the other
hand, interest expense decreased 19% from the prior year because of decreased
principal balances subject to interest accrual.
Inventories decreased as a result of two factors; the movement of work in
process into billable categories in accounts receivable and the delay of receipt
and issue transactions noted in Capital Resources, above. Prepaid expenses
decreased as certain components were amortized.
First Quarter of Fiscal Year 1996.
During the first quarter of fiscal year 1996 net sales increased by $425,325, or
69 percent, over the same period of the prior year. Cost of sales was $608,013,
or 67 percent of sales, and resulted in a gross profit of $296,298, or 32
percent of sales increased from 24 percent of sales for the same period of the
prior year. While some decrease in gross profit occurred due to learning curve
associated with complex new products in certain new contracts, lay-in of
materials raised it to the higher level. Sales increases during the first
quarter of fiscal year 1997 resulted from restructuring in the defense industry
causing prime contractors to outsource more work.
General and Administrative expenses of $232,698 for the period decreased
$121,774 from a year prior and reflected the control efforts of management and
the curtailment of nonproductive GIS subsidiaries. After factoring out
acquisition expenses of $49,509, G & A expenses amount to $183,189. Interest
expense increased because of capital lease imputed interest costs during the
quarter; investment income increased as a result of increased cash balance on
hand. In liquidating a $287,826 note balance related to the terminated contracts
the Company recorded a discount of $87,826 as forgiveness of debt.
Restricted cash and accrued litigation settlement both decreased to nil as a
result of the release of a bond (posted by the Company to indemnify a Director
of the Company to a former employee. The release resulted from a final decision
on a case which was pending before the Colorado Court of Appeals. The finding
was for the plaintiff and the expense had been recorded in a prior year.
Contract Backlog
The Company's manufacturing operation has active funded contracts and awarded
work amounting to $9.7 million as compared to an approximate $8.4 million
backlog with $6.2 million of uncompleted work a year prior. The current backlog
contains approximately $5.5 million of uncompleted work. Deliveries on funded
orders are scheduled over the next 30 months. The Company is aggressively
bidding opportunities with prime contractors for defense opportunities and sends
its technical staff to meet personally with program managers in order to more
competitively meet their requirements. The Company is confident that during the
ensuing year the projects now in house will result in additional orders as
during the past fiscal year. In addition, the Company continues to be invited to
bid on more projects with new and existing customers.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As reported on Form 8-K the Company was notified during the quarter that it's
petition for certiorari to the United States Supreme Court asserting the
termination of the third contract for lighting sets was for the convenience of
the government was denied. The same Form 8-K reported the Company's claim for
damages from a breach of contract by Airtech International Corporation. Both
parties have agreed to dismiss their claims with prejudice and have released any
claims.
ITEM 2. CHANGES IN SECURITIES.
During the current quarter, the Company issued 500 shares of new Series A 6%
Convertible Redeemable Preferred Stock in a private transaction to two offshore
funds under Regulation S.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.
Form 8-K dated November 12, 1996, reported the placement of $500,000 of
convertible redeemable preferred stock and an amendment to the Company's
Articles of Incorporation.
Form 8-K dated December 11, 1996, reported (1) changes in management of the
Company, (2) the Company's complaint in the district court seeking recovery of
costs, expenses and monetary sums from Airtech International Corporation as a
result of breach of the Stock Exchange Agreement and (3) the Company's
reinstatement of a motion asserting that the government did not fulfill its duty
to mitigate damages during the reprocurement process on the terminated contract
of 1988.
Subsequent to the end of the quarter, the Company filed Form 8-K dated January
15, 1997, reporting the Board of Directors had retained Transition Partners,
Ltd. to assist the board in restructuring the Company and enhancing shareholder
value.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D C X , I N C .
Dated: February 21, 1997
/S/ FREDERICK G. BEISSER
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Frederick G. Beisser
Chief Financial Officer,
Secretary & Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 90,928
<SECURITIES> 0
<RECEIVABLES> 1,313,498
<ALLOWANCES> 0
<INVENTORY> 887,099
<CURRENT-ASSETS> 2,418,991
<PP&E> 2,039,534
<DEPRECIATION> 790,210
<TOTAL-ASSETS> 3,712,315
<CURRENT-LIABILITIES> 2,058,780
<BONDS> 0
450,000
0
<COMMON> 5,072,072
<OTHER-SE> (3,892,599)
<TOTAL-LIABILITY-AND-EQUITY> 3,712,315
<SALES> 865,112
<TOTAL-REVENUES> 865,112
<CGS> 690,654
<TOTAL-COSTS> 324,720
<OTHER-EXPENSES> 1,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,150
<INCOME-PRETAX> (181,257)
<INCOME-TAX> 0
<INCOME-CONTINUING> (181,257)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,257)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
