UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
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 small business issuer 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.)
1597 Cole Boulevard, Suite 300B,Golden, CO 80401
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(Address of principal executive offices)
(Zip Code)
(303) 274-8708
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(Registrant's telephone number, including area code)
3002 N. State Highway 83, Franktown, Colorado 80115-0569
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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
4,924,570 Common Shares were outstanding as of June 30, 1997.
Transitional Small Business Format: Yes No X
Number of pages in this report is 10.
<PAGE>
PART I, FINANCIAL INFORMATION IS REPLACED IN ITS ENTIRETY WITH THIS
AMENDED PART I
Item 1. Financial Statements (Contains amended information)
DCX, Inc. and Subsidiaries
Condensed and Consolidated Balance Sheets
June 30 September 30
1997 1996
(Unaudited) (Audited)
- --------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 183,447 $ 209,637
Accounts receivable 1,703,845 995,040
Inventories 1,213,121 1,103,672
Prepaid expenses 272,828 195,832
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Total current assets 3,373,241 2,504,181
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Property and equipment:
At cost 2,042,678 2,039,534
Less: accumulated depreciation (836,259) (767,233)
- --------------------------------------------------------------------------------
Net property and equipment 1,206,419 1,272,301
Other assets 46,310 44,000
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$ 4,625,970 $ 3,820,482
================================================================================
See accompanying notes to financial statements
2
<PAGE>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Balance Sheets
June 30 September 30
1997 1996
(Unaudited) (Audited)
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current:
Notes payable $ 902,428 $ 1,279,623
Accounts payable 888,445
494,646
Accounts payable - terminated contracts 0 66,377
Accrued expenses 161,961 85,759
Accrued litigation settlement 521,000 521,000
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Total current liabilities 2,473,834 2,447,405
Long-term debt, less current maturities 5,280 24,060
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Total liabilities 2,479,114 2,471,465
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Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value,
20,000,000 shares authorized,
No shares issued and outstanding 0 0
Common stock, no par value, 2,000,000,000
shares authorized; shares issued and
outstanding, 4,924,570 and 4,434,109
at June 30, 1997 and
September 30, 1996, respectively 5,545,806 5,060,357
Additional paid-in capital
from common stock 329,384 329,384
from convertible preferred stock 0 0
Subscriptions receivable (179,000) (179,000)
Accumulated deficit (3,549,334) (3,861,724)
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Total stockholders' equity 2,146,856 1,349,017
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$ 4,625,970 $ 3,820,482
================================================================================
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Statements of Operations (Amended, see Note 10)
(Unaudited)
Nine months ended Three months ended
June 30 June 30
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales $ 3,964,929 $ 3,683,117 $ 1,427,786 $ 1,234,456
Cost of sales 3,530,824 2,776,167 1,477,077 1,046,675
- -------------------------------------------------------------------------------------------------------
Gross profit on sales 434,105 906,950 (49,291) 187,781
General and administrative expenses 702,705 771,053 163,862 282,931
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Income (loss) from operations (268,600) 135,897 (213,153) (95,150)
Other income (expense):
Interest expense (101,622) (89,950) (31,858) (19,126)
Insurance proceeds & other income 419,898 105,872 13,904 3,090
Other expense (4,152) (4,998) (1,417) (872)
Litigation Settlement Expense 0 (521,000) 0 (521,000)
- -------------------------------------------------------------------------------------------------------
Total other income (expense) 313,940 (510,076) (19,371) (537,908)
=======================================================================================================
Income (loss) before
extraordinary item 45,340 (374,179) (232,524) (633,058)
=======================================================================================================
Extraordinary item:
Gain on extinguishment of debt 267,050 0 267,050 0
=======================================================================================================
Net Income (loss) $ 312,390 $ (374,179) $ 34,526 $ (633,058)
=======================================================================================================
Income (loss) from operations $ (.03) $ .03 $ (.04) $ (.02)
per share of common stock
Extraordinary item .06 0 .06 0
=======================================================================================================
Net income (loss) attributable to
shareholders of common stock $ 146,724 $ (374,179) $ 34,526 $ (633,058)
Net Income (loss) attributable to $ .03 $ (.09) $ .01 $ (.15)
common shareholders per share
=======================================================================================================
Weighted average number of shares
of common stock outstanding 4,613,600 4,194,885 4,838,453 4,338,019
=======================================================================================================
See accompanying notes to financial statements
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
DCX, Inc. and Subsidiaries
Condensed and Consolidated Statements of Cash Flows (Amended)
(Unaudited)
For the Nine Month Periods Ended June 30, 1997 1996
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Operating activities:
<S> <C> <C>
Net income (loss) $ 312,390 $(374,179)
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 69,026 78,653
Gain on extinguishment of debt (267,050) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (708,805) 710,244
Increase in inventory (109,449) (296,177)
(Increase) decrease in prepaid expenses (76,996) (50,218)
(Increase) decrease in other assets (2,310) (124,516)
(Decrease) increase in accounts payable 327,422 (133,658)
(Decrease) increase in other liabilities 76,202 (140,775)
Increase in litigation settlement liability 0 371,000
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Net cash provided by (used in) operating activities (379,570) 40,374
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Investing activities:
Acquisition (disposition)of property and equipment (3,144) 6,998
Restricted cash 0 154,985
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Net cash provided by (used in) investing activities (3,144) 161,983
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Financing activities:
Payments on long-term debt, net (128,925) (348,894)
Issuance of common stock 35,449 287,121
Issuance of convertible preferred stock 450,000 0
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Net cash provided by (used in) financing activities 356,524 (61,773)
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Net increase (decrease) in cash (26,190) 140,584
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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 $ 183,447 $ 266,428
==========================================================================================
See accompanying notes to financial statements
</TABLE>
5
<PAGE>
DCX, INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by DCX, INC. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. DCX, INC. believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position as of June 30,
1997, the consolidated results of its operations for the nine periods ended June
30, 1997, and 1996 and statements of cash flows for the nine-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 nine-month period ended June 30,
1997, are not necessarily indicative of the results to be expected for the full
year ending September 30, 1997.
New Accounting Pronouncements
On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
NO. 128). This pronouncement provides a different method of calculating earnings
per share than is currently used in accordance with Accounting Principles Board
Opinion (APB) No. 15, "Earnings per Share." SFAS 128 provides for the
calculation of "Basic" and "Diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. The Company will adopt SFAS No. 128 in 1998 and its
implementation is not expected to have a material effect on the consolidated
financial statements.
In June 1997, the Financial Accounting Standards Board issue Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items tgat are required to be recognized under curent accounting
standards as components of comprehensive jincome be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial staements for periods beginning after
December 1`5, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on futurer
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
(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.
6
<PAGE>
(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 June 30, 1997, the
amount of the net operating loss carryforward balance is estimated at
$2,340,610. 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
has recorded a valuation allowance equal to the excess deferred tax assets.
(4) Litigation
Terminated Contracts. As reported in the Form 10-K for September 30, 1995, and
Form 10-KSB for September 30, 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, therefore, was received in January, 1996,
and, accordingly, was recorded in the prior year's data appearing in this
report.
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 Untied States Supreme Court where the Company's petition for certiorari
was denied in November, 1996. The Company had 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 Contract Appeals a reinstatement of its appeal of the
propriety of the assessed reprocurement costs which had been held in abeyance
pending the outcome at the Supreme Court. The discovery process has begun and a
hearing date has been set for March 28, 1998. (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) 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. All proceeds were received during the current quarter.
(7) Series A, 6% Cumulative Convertible Redeemable Preferred Stock.
During the current quarter, the holder of Series A, 6% Cumulative Convertible
Redeemable Preferred Stock converted its remaining 250 shares into common stock
in accordance with the issue agreement. Accordingly, the Company issued 225,730
shares of its common stock in exchange which brought the number of shares of
convertible redeemable preferred stock down to none.
(8) Employment Agreements.
On March 28, 1997, the Company approved employment agreements for three officers
of the Company which were executed on April 1, 1997. The agreements, were filed
as exhibits 10.6, 10.7, and 10.8 with the Form 10-Q, dated March 31, 1997 and
set base salary for the President & CEO, Vice President & General Manager, and
the Vice President - Finance & Administration of $120,000; $70,000, and $60,000,
respectively. The agreements grant fully vested nonqualified stock options as
incentives to the officers of 200,000; 70,000 and 70,000 respectively and
further grant the officers 180,000; 50,000 and 50,000 of performance stock
options requiring the attainment of certain goals. The incentive and performance
options are priced at the Company's NASDAQ bid price at close of business on
January 2, 1997, which was $1.125. The employment agreements provide for certain
cash bonus payments upon meeting defined performance goals. The executives are
7
<PAGE>
entitled to continuation of base compensation for a period of three years, two
years and two years, respectively, if employment is terminated for any reason
other than death, disability, cause, voluntary resignation or the expiration of
the term of the employment agreement; otherwise termination for the stated
reasons results in payment of base salary, performance and incentive bonuses for
18 months, 12 months and 12 months, respectively.
(9) Subsequent Event.
On August 1, 1997 the Company sold 650 shares of its Series A 6% Convertible
Redeemable Preferred Stock for net proceeds of $547,500. On August 4, 1997, the
proceeds were used to liquidate the SBA-held note at a discount.
(10) (Amended) Accounting for Preferred Stock convertible at a discount to the
market.
The statement of operations has been amended to give effect for a discount of
25% of the common stock which would result and is deemed to be additional
dividend to the holders of the Company's 6% convertible preferred stock sold on
November 12, 1996. The convertible preferred stock is convertible into common
stock at a 25% discount to the five day average market price of the common stock
immediately preceding the conversion date which was lower than the five day
average market price at the date of placement. This difference, $166,666, on the
first possible date of conversion is an imputed discount and is deemed to be
additional dividend available to the holders of the preferred stock which
reduces income available to common stock shareholders. Accordingly, it was
reduced from cumulative net income to arrive at net income attributable to
common shareholders.
PART I, ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Amended by replacement in its entirety with the
following information)
Financial Condition:
Liquidity.
Cash and cash equivalents decreased $26,190 to $183,447 from $209,637 at
September 30, 1996, primarily as a result of cash used in operations which
offset cash provided by financing activities.
The Company presently has working capital of $919,407 as compared to $801,894 at
June 30, 1996, and to $56,776 at the beginning of the fiscal year. The primary
cause for the increase is the funding received during the Company's frist and
second quarters and the recording of a discount of $267,050 granted by the SBA
in June, 1997 for full settlement of its outstanding balance. (Final liquidation
occurred subsequent to the current quarter.) These influxes were offset by a net
use of cash of $122,520 durinhg the nine-month period and a reduction of
long-term debt of $395,975.
The Company's current ratio, the ratio of total current assets to total current
liabilities, is 1:37as compared to 1:38 a year ago and is improved over 1.02:1
at September 30, 1996.
Capital Resources.
During its first fiscal quarter the Company sold a total of 500 shares of
convertible preferred stock which resulted in net funding of $450,000. During
the second quarter it received the proceeds from $400,000 of keyman life
insurance policies carried on a director of the Company.
During the second fiscal quarter the Company retained Transition Partners Ltd
(TPL) to advise the Company in certain matters and to assist in capital
formation efforts. On August 1, 1997 the Company sold $650,000 of convertible
preferred stock to meet the requirement for the June 3, 1997, balloon payment to
the Small Business Administration. The stock was sold on August 1, 1997
resulting in net proceeds of $547,500; on August 4, 1997 the SBA-held note was
liquidated.
8
<PAGE>
Results of Operations (Amended):
First Nine Months of Fiscal Year 1997
During the first nine months of fiscal year 1997 net sales increased by $281,812
or 7.7 percent, over the same period of the prior year. Cost of sales was
3,530,824, or 89 percent of sales, and resulted in a gross profit of $434,105,
or 11 percent of sales, a decrease from 27 percent for same period of the prior
year. Decrease in gross profit occurred due to increased hourly labor costs and
use of direct labor on indirect overhead activities rather than on revenue
producing production in order to improve Company efficiency. Sales increase
resulted from the growing production requirements to meet increased demand in
the defense industry and the receipt of new work.
General and administrative expenses of $702,705 for the current period decreased
from $771,053 a year prior and reflect management's actions toward eliminating
unnecessary costs. Other income had an increase of $389,194 as a result of
recording proceeds of $400,000 from keyman life insurance policies. Interest
expense increased primarily due to factoring interest in accelerating the
receipt of life insurance proceeds, to origination points paid in renewing a
first mortgage note on the Company's real property and to imputed interest
expense related to capital lease of equipment.
Accrued litigation settlement expense decreased $521,000 from 1996 as a result
of the reserve recorded in 1996 which did not reoccur in fiscal 1997. It was
related to the denial of certiorari on the third terminated contract during the
fourth quarter of fiscal year 1996.
Third Quarter of Fiscal Year 1997.
Third quarter sales for fiscal 1997 of $1,427,786 increased $193,330, or 16
percent, over the same quarter of the prior year. Cost of sales was $1,477,077,
or 103 percent of sales, and resulted in a gross loss of $49,291, or four
percent of sales versus gross profit of 15 percent for the same period of the
prior year. The decrease in gross profit was attributable to increased hourly
labor costs, slightly tighter margins on a contract coming into full scale
production and the cost of management's activities to change manufacturing and
ancillary activities for long-term improvement of production efficiencies.
Management actions to stem unnecessary costs reduced general and administrative
expenses for the quarter by $119,069 or 42 percent. Interest expense increased
$12,732 because of increased interest expense from renewal of a note for the
real property in the second quarter which was corrected during the third quarter
and from imputed interest related to capital lease of equipment.
Sales increased $193,330 during the quarter over the prior year's quarter;
however, because of increased cost of sales, income from operations decreased by
124 percent. On the other hand, the Company recorded forgiveness of debt of
$289,524 which resulted in net income of $44,526 or $.01 per share, as compared
to the prior year's net loss of $633,058, or $.15 per share.
Accrued litigation settlement expense decreased $521,000 from 1996 as a result
of the reserve recorded in 1996 which did not reoccur in fiscal 1997. It was
related to the denial of certiorari on the third terminated contract during the
fourth quarter of fiscal year 1996.
Contract Backlog
The Company's manufacturing operation has active funded contracts and awarded
work amounting to $10.3 million as compared to an approximately $7.9 million
backlog with $3.6 million of uncompleted work a year prior. The current backlog
also contains approximately $3.6 million of uncompleted work. Deliveries are
scheduled over the next 32 months. The Company is aggressively bidding
opportunities with defense and other prime contractors for defense
opportunities. The Company is confident that during the ensuing year these
projects will result in additional orders as during the past fiscal year. In
addition, the Company continues to be invited to bid on more projects with new
and existing customers.
9
<PAGE>
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: November 6, 1997
/S/ Fred Beisser
---------------------------------------------
Frederick G. Beisser
Vice President - Finance & Administration,
Secretary & Treasurer and Principal
Accounting Officer
10
