UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(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, 1996 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.
-----------------------------
(Name of small business issuer)
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)
Issuer's telephone number (303) 688-6070
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class
Common Stock, no par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act during the past 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
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $4,410,592.
As of November 30, 1996, the aggregate market value of the shares of the
issuer's voting stock held by non-affiliates of the issuer based on the average
of closing bid and asked prices of the Common Stock as reported on the NASDAQ
Small Cap Market sm, was approximately $8,485,445.
As of November 30, 1996, the issuer had outstanding 4,434,109 shares of Common
Stock.
Transitional Small Business Disclosure Format: Yes [ ] ; No [ X ]
Exhibit index begins on page 11 Total number of pages in this report is 34.
<PAGE>
PART I
Item 1 - DESCRIPTION OF BUSINESS
(a) Business Development.
DCX, Inc. (the "Company") was incorporated as a Colorado corporation on December
8, 1981. During the past three years the Company has been in the custom design
and contract manufacture of electronic interconnect assemblies. The Company is
also seeking to expand and diversify it business.
(b) Business of Issuer
The Company provides custom manufacturing services and products to the aerospace
and commercial markets and has successfully increased revenues and diversified
its customer base. The Company focuses primarily on 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 and communications industries and for the Federal
Government.
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 has agreements with manufacturer's representatives strategically
located across the United States to find and develop manufacturing
opportunities. Finished products are shipped directly to customers via freight
or express delivery services.
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.
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, 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 and
communications related wiring and cable assemblies. The Company continues to
examine diversification into new areas outside of defense and aerospace where
high reliability is required.
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's fiscal year 1996 sales to customers in aggregate amounts exceeding
10 percent of the Company's consolidated net sales included $2,205,832 or 50% to
Lockheed Martin Aeronautical Systems, $494,720 or 11% to Olin Aerospace
Corporation, and $490,763 or 11% to Codar Technology, Inc.; remaining sales
amounted to less than 10 percent to any single customer. (See Note Ten to the
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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 as seen by the increasing backlog (see Item 6, below).
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 does not presently hold patents or have trademarked products.
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 nil and $24,000 in fiscal years 1996, and 1995, 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.
The Company currently has 53 full-time and one part-time employees. None of the
Company's employees are represented by a labor union. The Company considers its
employee relations to be excellent.
Item 2 - DESCRIPTION OF PROPERTY
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 Six, below,
and Note Four to the Financial Statements) The facilities are suitable and
adequate for the foreseeable future.
Item 3 - LEGAL MATTERS
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). As previously reported, the Company completed the settlement process in
December, 1995, following a favorable decision in May, 1992, from the Armed
Services Board of Contract Appeals (ASBCA) on two of three cases in longstanding
litigation with the Department of Defense.
The third contract required the Company to design, develop, test and manufacture
light sets to a specified schedule. Because of a Government caused delay, a
required test report was three days late for which DGSC terminated the contact
for default. The Company found this treatment to be inequitable and contested
the termination for default of the third contract at the ASBCA and ultimately
filed a petition for certiorari at the United States Supreme Court.
On November 19, 1996, the Company learned that its petition for certiorari was
denied. In its third fiscal quarter the Company recorded a reserve of
approximately $521,000 for the effect of the loss. Certain actions ensuing from
the loss could have a materially adverse effect on the Company (See Note Five to
Financial Statements and Item 6, Management Discussion and Analysis).
On December 11, 1996, the Company filed a complaint in the District Court for
Douglas County, Colorado, against Airtech International Corporation ("Airtech"),
John Potter, and C.J. Comu. The Company alleges, among other items, that the
defendants failed to pay funds that they agreed to pay the Company, that the
defendants breached the Agreement for Exchange of Shares dated July 29, 1996,
between the Company and Airtech, and that the defendants made material
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misrepresentations of facts to the Company. The complaint seeks recovery of
costs and expenses incurred by the Company, and seeks payment of funds the
defendents agreed to pay to the Company. The defendants have filed an answer and
counterclaim. Counsel believes the allegations in the counterclaim are without
merit.
The Company is engaged in various other 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
None.
PART II
Item 5 - MARKET FOR COMMON EQUITY 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:
Bid Price
-------------
Quarter Ended High Low
------------- ---- ---
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
December 31, 1995 1.59 1.13
March 31, 1996 1.50 .75
June 30, 1996 6.00 .63
September 30, 1996 3.63 1.75
As of November 30, 1996, the Company believes there are approximately 3,500
beneficial owners of the Company's stock of which 2,315 are registered with the
transfer agent and the balance are held in street name. The Company has never
paid a cash dividend on its common stock. The Company currently intends to
retain any earnings for use in business development.
(b) On November 12, 1996, the Company sold a total of 500 shares of Series A 6%
Cumulative Convertible Redeemable Preferred Stock par value $.001 ("Series A
Preferred"), pursuant to Regulation S. The total offering price was $500,000.
First Capital Partners, Inc., Atlanta, GA, acted as the Company's placement
agent for the transaction. The sale was made in a private offshore transaction
to two non US funds who represented to the Company that they were sophisticated
investors.
Terms of the Series A Preferred provide for cumulative dividends at a 6% annual
interest rate payable when, as and if declared, payable in cash or, at the
option of the Company, in additional shares of Series A Preferred at the rate of
one share of Series A Preferred for each $1,000 of such dividend not paid in
cash. The dividends are cumulative whether or not earned. The Series A Preferred
has a stated value of $1,000 per share. The Series A Preferred do not have
voting rights. Shares of Series A Preferred Stock have the following conversion
rights:
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(1) Each holder of shares of Series A Preferred Stock shall have the right at
any time and from time to time after forty (40) days from the date on which a
share of Series A Preferred Stock was issued, to convert some or all such share
into fully paid and non-assessable shares of Common Stock of the Corporation
determined in accordance with the Conversion Rate provided in Paragraph (b)
below (the "conversion Rate").
(2) The number of shares Common Stock issuable upon conversion of each share of
Series A Preferred Stock shall equal (I) the sum of (A) the Stated Value per
share and (B) accrued and unpaid dividends on such share, divided by (ii) the
Conversion Price. The Conversion Price shall be equal to the lessor of: (I) the
average of the Closing Bid Price (as hereinafter defined) of the Corporation's
Common Stock for the five (5) trading days immediately preceding the date of
issuance of the Series A Preferred Stock; and (ii) seventy five percent (75%) of
the average of the Closing Bid Price for the five trading days immediately
preceding the conversion of the Series A Preferred Stock. The Closing Bid Price
shall mean the Closing bid price of the Corporations Common Stock as reported by
NASDAQ (or if not reported by NASDAQ as reported by such other exchange or
market where traded).
The Series A Preferred is subject to mandatory conversion two years after the
date of issue.
The Company paid a commission of ten percent of the total offering price, and
agreed to issue to First Capital Partners warrants to purchase 36,281 shares of
the Company's no par value common stock. The warrants are exercisable until
November 12, 1998, with an exercise price of $1.875 per share. The holders of
the warrants, and the holders of the 500 shares of Series A Preferred each have
a demand and piggy back registration right if necessary to permit the public
sale of the underlying common stock.
The private sale of the Series A Preferred was exempt from registration under
Regulation S. The sale was made in an offshore transaction to non US persons,
and the purchasers made representations to the Company regarding their status
and actions necessary to comply with Regulation S.
Item 6 - 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, 1996.
Liquidity
The third contract, terminated for default in 1988, was vigorously litigated by
the Company and it submitted a petition for certiorari to the United States
Supreme Court; an unfavorable decision ensued which the Company became aware of
on November 19, 1996. The Company had previously recorded a reserve of $521,000
in its third quarter for a potential loss which could have a materially adverse
effect on the Company. The Company is contesting the propriety of assessing
reprocurement costs which constitute a majority of the reserve.
As a result of the contract terminations in 1988, the Company was previously in
default with regards to the mortgage loan on its building ($305,000) 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, 1997. The Company's mortgage note was refinanced through January 11,
1997, at which time a balloon payment for the remaining balance is due. The
lender has provided a written offer to extend the note for 12 months and the
Company is accepting it. If not extended, the Company would be required to make
a balloon payment of approximately $294,000; presently the Company does not have
cash in this amount available nor does it anticipate having that amount by
January 11, 1997. The Company is pursuing refinancing options to consolidate the
first mortgage and SBA loans.
Due to the effects of the terminations of the contracts by the Government, the
Company has no usable lines of bank credit. 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 remaining
balance of $287,826 on which it received a discount of $82,826.
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At September 30, 1996, the Company had net working capital of $56,776 and its
current ratio was 1.02:1; cash balances available for use amounted to $209,637.
Compare with the prior year where working capital was $952,817, current ratio
was 1.4:1; and cash balances available for use amounted to $125,844. The
principal causes of the decrease in working capital was reserve of litigation
settlement expenses recorded of $521,000 recorded for the possible effect of the
denial of certiorari at the Supreme Court (See Item Three, supra) and the
increase of $292,750 in inventories to support the Company's growing
manufacturing operations related to new contracts.
Changes in cash during fiscal year 1996 resulted in a net increase of $83,793 as
compared to an increase during fiscal year 1995 of only $10,958. The primary
cause was that net cash of $183,850 was provided by operating activities as
opposed to a use of $151,517 of cash during fiscal year 1995. Investing
activities produced $98,649 more than in 1995 while financing activities used
$361,181 more; the latter resulted mostly from the liquidation of notes payable
of $287,826.
The Company has, at the end of FY 1996, capital lease payment commitments
through 2000 of $81,116 which require a total annual payment of $55,101 in
fiscal year 1997. (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, 1997.
The Company does not believe that its business has been significantly impacted
during the past three years by cost inflation.
Major Asset Purchase Agreements
During fiscal year 1996 the Company entered into agreements to acquire two
companies in accordance with the Company's diversification plans to enhance
shareholder value. The Company was not able to raise required cash to purchase
the first target. The other acquisition was also not consummated; the first
time, because the Company terminated the initial agreement upon the disclosure
of certain information during its due diligence process and in the second
instance as a result of the target company not curing its breach of the stock
exchange agreement executed after arriving at new terms (See also Item Three,
Legal Matters, supra).
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).
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 startup costs for subsidiaries, grew to
17.8 percent in FY 1995 and to 19.7 percent in fiscal year 1996 with the
increased manufacturing volume. As noted, below in Results of Operations,
revenue for fiscal year 1996 increased 102 percent over fiscal year 1995 which
increased 111 percent over FY 1994; both increases resulted from 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 to increase revenues at a
reduced rate of approximately 20 to 35 percent and to generate internal cash
flows from operations. In the interim and subsequent to the end of the fiscal
year, the Company completed a placement of convertible preferred stock under SEC
Regulation S with two offshore funds. Additional management plans are outlined
under Capital Resources, below and Liquidity, supra.
Capital Resources
In order to fund the first acquisition as an asset purchase and to secure
working capital required to implement the related business plan for rapidly
increasing ensuing 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 diversification
activities, acquisition program and other business development endeavors
designed to result in significant new business. The Company recently secured
such financing, through the placement of equity as noted supra. An additional
placement of equity or debt will be needed, of which there can be no assurance.
While it presently has no contractual arrangement for such an offering the
Company previously entered into an agreement for locating needed capital, which
agreement resulted in the sale of convertible preferred stock. The Company will
receive $250,000 proceeds from a life insurance policy carried on the late
chairman emeritus (see also Item 9, below).
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Results of Operations
Fiscal Year 1996 Compared to 1995
Sales increased $2,229,252 or 102 percent from fiscal year 1995 to fiscal year
1996 reaching $4,410,592. Management believes the increase is a result of
continued consolidation in the defense arena which has caused prime contractors
to increase outsourcing of component subassemblies as a means of controlling and
reducing their manufacturing costs. As of November 30, 1996 the Company had open
contracts valued at $7.6 million with $5.7 million of backlog still to be
completed. At the same time in the previous year, the comparable figures were
$7.1 and $5.2 million, respectively.
Cost of sales for fiscal year 1996 increased $1,753,872 over fiscal year 1995 to
a total of $3,542,996 for fiscal year 1996. Considered as a percent of sales the
level remained approximately the same overall; however, after factoring out
fiscal year 1995 nonmanufacturing cost of sales, there is an increase when 1996
costs are viewed as a percent of sales. The increase is attributable to the
learning curve and some of amount of rework required as the Company began
production of a new more complex product. This is anticipated to come into line
as the manufacturing operation gains additional experience with the new product.
General and administrative expenses decreased slightly by $6,229 from fiscal
year 1995 to $1,329,002 in fiscal year 1996. The total included approximately
$151,319 attributable to costs of attempted acquisitions versus $48,982 in the
prior year.
The Company recorded litigation settlement expenses during fiscal 1996 of
approximately $529,500, reduced by approximately $83,000 from forgiveness of
debt during the Company's first fiscal quarter ensuing from the liquidation of
two promissory notes related to the DOD contracts terminated in 1988.
Interest expense increased $32,329 from the prior year as a result of an
increased interest rate on the first mortgage and interest assessed on certain
late payments. Other expenses decreased as a result of the absence of asset
write down expense.
As a result of its net operating loss the Company increased its deferred tax
valuation allowance by $330,000.
During the fourth quarter, the Company recorded consulting fees of approximately
$118,000 as amortization of deferred marketing expenses.
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.
The Company believes the increased production in its manufacturing operations
will allow distribution of its indirect costs over a larger direct cost base and
result in a return to profitability in manufacturing which will then lead to
additional contracts for manufacturing.
Concurrently, the Company is attempting to diversify through mergers and
acquisitions.
Effect of Recent Accounting Pronouncements.
The Financial Accounting Standards Board 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 7 - FINANCIAL STATEMENTS
The financial statements required by this item are included at the end of this
Form 10-KSB. An index to such financial statements and applicable schedules is
contained in that separate section.
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Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 9 - DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are:
Name Age Position
---- --- --------
John G. Anderson & 67 Chairman Emeritus & and Director
Jeanne M. Anderson* 45 Chairman of the Board of Directors
Frederick G. Beisser 54 Chief Financial Officer, Secretary,
Treasurer and Director
Stephen Carreker 47 President, CEO and Director
D. Scott McReynolds 32 Vice President and General Manager
and Director
William A. Walters# 57 Vice President, Manufacturing
NOTES: * Ms. Jeanne Anderson is the daughter of the late Mr. John G. Anderson.
# Mr. William A. Walters is the brother-in-law of Mr. John G. Anderson.
& Mr. Anderson passed away on January 7, 1997.
Mr. John G. Anderson 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. Effective January 1, 1997, Mr. Anderson became
Chairman Emeritus and remained a Director until he passed away on January 7,
1997. 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. 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 served as
President and Chief Executive Officer through December 31, 1996. She was elected
to that position effective October 1, 1991, and became Chairman of the Board of
Directors on January 1, 1997. She 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.
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 Director of Strategic Planning and became President and Chief Executive
Officer effective January 1, 1997. Prior to joining the Company he was manager
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of the IDS/IBM Manama, Bahrain; was Vice President, Geonex Corporation, Inc.,
and Project Manager for Gwinnet County, Georgia. Mr. Carreker has over 20 years
of domestic and international experience. He holds a Bachelor of Landscape
Architecture from the University of Georgia and is a Georgia-licensed landscape
architect.
Mr. D. Scott McReynolds became a director of the Company on June 7, 1996 and was
appointed Vice President and General Manager on the same date. Mr. McReynolds
joined the Company in 1991 as an industrial engineer; he was subsequently
promoted to Quality Assurance Manager and became Acting General Manager in
December, 1995. He holds a Bachelor of Science in Industrial Engineering from
Southern Illinois University.
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.
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 10 - 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, 1996, to the CEO. No other executive officers of the Company had
aggregate compensation exceeding $100,000. Mr. Carreker became President and CEO
on January 1, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
- ------------------------------------------------- ----------------------------------------------------------------
Name and Other Restricted Stock All Other
Principal Annual Comp- Stock Options Compen-
Position Year Salary ($) Bonus ensation Awards (#) sation ($)*
---------- ---- ---------- ----- ---------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeanne M. 1996 $116,018 - - - $1,740
Anderson 1995 116,018 - - 75,000 - 1,740
President 1994 117,518 - - - 1,624
& CEO
</TABLE>
* Amounts of All Other Compensation represent employer contribution under the
Company's 401K Retirement Savings Plan.
The Company did not grant any stock options to officers or employees during
fiscal years 1994; in 1995 a total of 175,000 stock options were issued to
officers of the Company under the 1991 Stock Option Plan.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Value of Unexercised
Unexercised In-The-Money
Stock Options Stock Options
at FY-End (#) at FY-End ($)
Shares acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Jeanne M.
Anderson
President & CEO - - 125,000/0 (1) $ 382,813/-0-
</TABLE>
-9-
<PAGE>
(1) Options for 50,000 shares of DCX common stock were granted under the
Company's 1991 Stock Option Plan on May 15, 1992 at a price of $1.21875;
additional options for 75,000 shares were granted on April 19, 1995 under
the 1991 Plan at $.71875. 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 1996.
Item 11 - 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 upon exercise of stock options issued 231,000
shares to a nonaffiliated person 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 11.5
Mr. Anderson was the Chairman Voting Power
Jeanne M. Anderson (*)
Common President and Chief Executive Officer 114,000 Sole 2.6
and Director Voting Power
Common Stephen Carreker ( & ), Director for None Nil
Strategic Planning and Director
Common Frederick G. Beisser 9,400 Sole @
Chief Financial Officer, Secretary Voting Power
Treasurer, and Director
Common D. Scott McReynolds 5,600 Sole @
VP, General Manager and Director Voting Power
Common William A. Walters (#) 25,000 Sole @
VP - Manufacturing Voting Power
All Directors and Officers
as a group (6 persons) 665,400 15.0
</TABLE>
NOTES:
* Ms. Jeanne Anderson is the daughter of the late Mr. John G. Anderson and
became Chairman of the Board of Directors on January 1, 1997.
# 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.
-10-
<PAGE>
& Mr. Carreker became President and Chief Executive Officer on January 1,
1997.
(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 251,300 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; and Mr. Walters, 16,300 shares.
(3) If the options denoted in Note 2, above, were exercised, Directors and
Officers would have the following percentages of outstanding common stock:
Mr. Anderson, 11.0 percent; Ms. Anderson, 4.7 percent; Mr. Beisser, 1.4
percent; Mr. Walters, 0.8 percent; and as a group, 18.0 percent.
Item 12- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 13- EXHIBITS 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:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
2.1 Agreement for Exchange of Shares between
DCX, Inc. and AIRTECH INTERNATIONAL
CORPORATION Note 6
3.1 Amended Articles of Incorporation
and Bylaws of Douglas County Industries, Inc. Note 1
3.2a Amended Articles of Incorporation of DCX, Inc. Note 1
3.2b Amended and Restated Articles of Incorporation
of DCX, Inc., dated July 8, 1991. Note 2
3.2c Articles of Amendment to the Articles of
Incorporation of DCX, Inc., dated November 6, 1996 Note 4
4.2 Specimen Stock Certificate Note 1
10.1 Standard Form Purchase Order Note 1
10.2 Standard Form Government Contract/Purchase Order Note 1
10.3 Contract between Douglas County Industries,
Inc. and Ogden Air Logistics Center Note 1
-11-
<PAGE>
10.4 DCX 1991 Stock Option Plan Note 5
10.5 DCX 1995 Stock Incentive Plan Note 5
16.1 Resignation Letter from Wenner,
Silvestain & Co. Oct 11, 1994 Note 3
16.2 Wenner, Silvestain & Co.
response to SEC, Oct 17, 1994 Note 3
16.3 DCX New s Release, October 18, 1994 Note 3
21.1 List of Subsidiaries Page 14
27.1 Financial Data Schedules Incorporated by reference from Edgar Filing on
January 14, 1997
</TABLE>
NOTE:
(1) Incorporated by reference from Registration Statements on Form S-18, file
no. 33-1484.
(2) Incorporated by Reference from the definitive Proxy Statement, dated May 3,
1991
(3) Incorporated by Reference from Form 8K and Amendment, dated October 11,
1994.
(4) Incorporated by Reference from Form 8K, dated November 12, 1996.
(5) Incorporated by Reference from Form S-8, dated September 29, 1996
(6) Incorporated by Reference from Form 10-Q for June 30, 1996, dated August 1,
1996. The agreement was terminated prior to completion.
(b) Reports on Form 8-K.
No report was filed on Form 8-K by the Company during fourth quarter of the
fiscal year covered by this annual report.
Reports filed on Form 8-K subsequent to the end of the fiscal year:
Form 8-K dated November 12, 1996, reported subsequent to fiscal year end the
placement of $500,000 of convertible redeemable preferred stock and an amendment
of 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 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 fulfil its duty
to mitigate damages during the reprocurement process on the third terminated
contract of 1988.
-12-
<PAGE>
SIGNATURES
In accordance with 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 13, 1997 By: /s/ STEPHEN CARREKER
--------------------- -------------------------------
Stephen Carreker
President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
- -------------------------
Jeanne M. Anderson Chairman & Director
//S STEPHEN CARREKER January 13, 1997
- -------------------------
Stephen Carreker President, CEO & Director
/S/ FREDERICK G. BEISSER January 13, 1997
- -------------------------
Frederick G. Beisser Chief Financial Officer,
Secretary, Treasurer and
Director
/S/ D. SCOTT MC REYNOLDS January 13, 1997
- -------------------------
D. Scott McReynolds Vice President &
General Manager and
Director
-13-
<PAGE>
List of Subsidiaries (Inactive)
Registered Name State of Incorporation
------------------- -----------------------------
GeoNova US, Inc. Colorado
GeoStars International Inc. Colorado
-14-
<PAGE>
DCX, Inc.
and Subsidiaries
Index to Consolidated Financial Statements
================================================================================
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet as of
September 30, 1996 F-3 - F-4
Consolidated Statements of Operations
for the Years Ended September 30,
1996 and 1995 F-5
Consolidated Statements of Stockholders'
Equity for the Years Ended
September 30, 1996 and 1995 F-6
Consolidated Statements of Cash Flows
for the Years Ended September 30,
1996 and 1995 F-7
Summary of Accounting Policies F-8 - F-11
Notes to Consolidated Financial Statements F-12 - F-20
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 sheet of DCX, Inc. and
subsidiaries as of September 30, 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements 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. 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. 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, 1996 and the results of their operations and
their cash flows for the two years then ended, in conformity with generally
accepted accounting principles.
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 9, 1996
F-2
<PAGE>
DCX, Inc.
and Subsidiaries
Consolidated Balance Sheet
================================================================================
September 30, 1996
- --------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 209,637
Accounts receivable, less allowance
of $30,000 for possible losses
(Notes 2 and 4) 995,040
Inventories (Notes 3 and 4) 1,103,672
Prepaid expenses and other 195,832
- --------------------------------------------------------------------------------
Total current assets 2,504,181
- --------------------------------------------------------------------------------
Property and equipment (Note 4):
Building and land 1,415,058
Leased assets 227,863
Furniture and equipment 236,973
Test and manufacturing equipment 159,640
- --------------------------------------------------------------------------------
2,039,534
Less accumulated depreciation 767,233
- --------------------------------------------------------------------------------
Net property and equipment 1,272,301
- --------------------------------------------------------------------------------
Other assets 44,000
- --------------------------------------------------------------------------------
$ 3,820,482
================================================================================
See accompanying report of independent certified public accountants, summary of
accounting policies and notes to consolidated financial statements.
F-3
<PAGE>
DCX, Inc.
and Subsidiaries
Consolidated Balance Sheet
================================================================================
September 30, 1996
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current:
Notes payable (Note 4) $ 1,279,623
Accounts payable 494,646
Accounts payable - terminated contracts 66,377
Accrued expenses 85,759
Accrued litigation settlement (Note 5) 521,000
- --------------------------------------------------------------------------------
Total current liabilities 2,447,405
Long-term debt, less current maturities (Note 4) 24,060
- --------------------------------------------------------------------------------
Total liabilities 2,471,465
- --------------------------------------------------------------------------------
Contingencies (Notes 1 and 5)
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000 shares
authorized, no shares issued or outstanding (Note 12) -
Common stock, no par value, 2,000,000,000 shares
authorized, shares issued and outstanding
4,434,109 (Note 8) 5,060,357
Additional paid-in capital 329,384
Subscriptions receivable (Note 8) (179,000)
Accumulated deficit (3,861,724)
- --------------------------------------------------------------------------------
Total stockholders' equity 1,349,017
- --------------------------------------------------------------------------------
$ 3,820,482
================================================================================
See accompanying report of independent certified public accountants, summary of
accounting policies and notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DCX, Inc.
and Subsidiaries
Consolidated Statements of Operations
==================================================================================================
Years Ended September 30, 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales (Note 10) $ 4,410,592 $ 2,181,340
Cost of sales 3,542,996 1,789,124
- ---------------------------------------------------------------------------------------------------
Gross profit on sales 867,596 392,216
- ---------------------------------------------------------------------------------------------------
General and administrative expenses 1,329,002 1,335,231
Litigation settlement and related - net (Notes 4 and 5) 446,674 -
- ---------------------------------------------------------------------------------------------------
Loss from operations (908,080) (943,015)
- ---------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (155,757) (123,428)
Asset writedowns (Note 11) - (287,529)
Miscellaneous 10,183 (10,869)
- ---------------------------------------------------------------------------------------------------
Total other expense (145,574) (421,826)
- ---------------------------------------------------------------------------------------------------
Net loss $ (1,053,654) $ (1,364,841)
- ---------------------------------------------------------------------------------------------------
Net loss per share $ (.25) $ (.34)
- ---------------------------------------------------------------------------------------------------
Weighted average number of shares
of common stock outstanding 4,287,437 3,969,464
- ---------------------------------------------------------------------------------------------------
See accompanying report of independent certified public accountants, summary of
accounting policies and notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DCX, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
===================================================================================================================
Common Stock Additional
Years ended September 30, ---------------------- Paid-in Subscriptions Accumulated
1996 and 1995 Shares Amount Capital Receivable Deficit Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 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
Sale of stock through options
exercised 85,000 61,094 - - - 61,094
Stock issued for services 233,488 233,723 - - - 233,723
Net loss for the year - - - - (1,053,654) (1,053,654)
- -------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 4,434,109 $ 5,060,357 $ 329,384 $ (179,000) $ (3,861,724) $ 1,349,017
====================================================================================================================
See accompanying report of independent certified public accountants, summary of
accounting policies and notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DCX, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
==================================================================================================
Increase (Decrease) In Cash And Cash Equivalents
Years Ended September 30, 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net loss $ (1,053,654) $ (1,364,841)
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
Forgiveness of debt (82,826) -
Provision for litigation 521,000 -
Provision for losses on inventory 60,000 -
Stock issued for services 258,723 8,659
Depreciation and amortization 114,202 128,302
Changes in operating assets and liabilities:
Accounts receivable 1,066,891 348,602
Inventories (352,750) (473,990)
Other assets 9,915 127,062
Accounts payable (82,360) 317,582
Accrued expenses (275,291) 175,760
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 183,850 (151,517)
- ---------------------------------------------------------------------------------------------------
Investing activities:
Acquisition of property and equipment - (25,354)
Proceeds on sale of marketable securities - 86,675
Restricted cash 154,985 (4,985)
- ---------------------------------------------------------------------------------------------------
Net cash provided by investing activities 154,985 56,336
- ---------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from debt 325,000 -
Payments on debt (641,136) (201,111)
Proceeds from the issuance of common stock 61,094 307,250
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (255,042) 106,139
- ---------------------------------------------------------------------------------------------------
Net increase in cash 83,793 10,958
Cash and cash equivalents, beginning of year 125,844 114,886
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 209,637 $ 125,844
===================================================================================================
See accompanying report of independent certified public accountants, summary of
accounting policies and notes to consolidated financial statements.
F-7
</TABLE>
<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 inactive 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.
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.
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.
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:
F-8
<PAGE>
DCX, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Building 31 years
Leased assets Life of lease
Furniture and equipment 5 to 7 years
Test and manufacturing equipment 5 to 7 years
- --------------------------------------------------------------------------------
Depreciation is 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 where under
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 $-0- and $24,000 for the years ended
September 30, 1996 and 1995.
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
subcontractor 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-9
<PAGE>
DCX, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Fair Value of
Financial
Instruments The carrying amounts of cash, accounts receivable, accounts
payable, and accrued expenses approximate fair value because
of the short maturity of these items. The fair value of
long-term debt and capital lease obligations were estimated
based on market value for obligations with similar terms.
Management believes that the fair value of the long-term
debt and capital lease obligations approximate their
carrying value.
Use of
Estimates The preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
balance sheet dates and the reported amounts of revenue and
expense during the reporting periods for long-term
contracts. The Company's operations require it to make
significant assumptions concerning cost estimates for
equipment and labor, productivity rates as well as
production schedules for long-term contracts. Due to the
uncertainties inherent in the estimation process and the
significance of having a few contracts in process at
September 30, 1996, it is possible that completion costs for
some contracts may have to be materially revised in the near
future.
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.
F-10
<PAGE>
DCX, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Reclassifications Certain items included in the prior year's 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 $461,000,
$943,000 for the years ended September 30, 1996 and 1995.
The Company has three notes payable totalling $1,230,817 due
in fiscal year 1997. The Company may not be able to meet the
note payments due. Additionally, 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. The ultimate results of
these efforts cannot be determined at the present time.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
Management's plans include, among other items, actively
pursuing additional funding in order to meet working capital
requirements. Also, the Company is in negotiations to extend
the maturities of their notes payable.
2. Accounts
Receivable The components of accounts receivable are as follows:
September 30, 1996
------------------------------------------------------------
Long-term contracts:
U.S. Government - Prime
and subcontracts:
Amounts billed $ 302,226
Recoverable costs and accrued
profit on progress completed -
not billed 616,616
------------------------------------------------------------
Total U.S. Government 918,842
------------------------------------------------------------
Commercial:
Amounts billed 50,505
Recoverable cost and accrued profit
on progress completed-not billed (27,542)
------------------------------------------------------------
Total commercial 22,963
------------------------------------------------------------
Other 53,235
Less provision for losses 30,000
------------------------------------------------------------
Total accounts receivable $ 995,040
============================================================
Recoverable costs and accrued profits not billed will be
billed on the basis of contract terms and delivery
schedules.
F-12
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
3. Inventories Inventories are stated at the lower of cost or market by
specific identification and consist of:
September 30, 1996
------------------------------------------------------------
Raw materials $ 955,978
Work in process 297,694
------------------------------------------------------------
1,253,673
Reserve for obsolescence 150,000
-------------------------------------------------------------
Total inventory $ 1,103,672
=============================================================
4. Notes Payable
and Long-Term
Debt
September 30, 1996
------------------------------------------------------------
Note payable in monthly installments of
$10,787 per month beginning August 1996,
interest at 10.5%, collateralized by
accounts receivable, inventory, second
deed of trust on building, property and
equipment and contract rights, maturing
June 3, 1997 $ 611,967
Note payable in monthly installment of
$2,450 per month beginning August 1996
with no accrual of interest,
collateralized by accounts receivable,
inventory, second deed of trust on
building property and equipment and
contract rights, maturing June 3, 1997.
313,724
Note payable in monthly installments of
$5,912, including interest at 13%,
collateralized by a deed of trust on
building and assignment of a lease, the
note matures on January 11, 1997. (a)
305,126
Capital lease obligation (Note 7) 72,866
------------------------------------------------------------
1,303,683
Less current maturities 1,279,623
------------------------------------------------------------
Long-term debt, less current
maturities $ 24,060
============================================================
F-13
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
(a) In December 1996, the Company received written
commitment which will extend the $305,126 mortgage loan
payable. The extension would provide the terms of the
note to remain the same with the note maturing in
January 1998.
In December 1995, a previously outstanding note payable was
settled requiring a cash payment of $205,000. The settlement
gain on forgiven debt of $82,826 was recorded in the year
ended September 30, 1996.
5. Litigation Following the termination of merger discussions between the
Company and an unrelated company, Airtech International
Corporation ("Airtech"), DCX, Inc. filed a complaint against
Airtech and certain of its officers alleging that the
defendants had breached its agreement and made material
misrepresentation of facts. The Company's claim seeks
payment of amounts due under the agreement and reimbursement
of costs and expenses with such amounts estimated at
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 in excess of $27 million. The case is in
its preliminary stages and no formal discovery has
commenced. Management of the Company intends to vigorously
pursue its claim and oppose the alleged counterclaims and
feels that the ultimate resolution of this matter will not
have a material adverse impact on the Company's financial
position.
Other Litigation
----------------
The Company had previously filed an appeal before the U.S.
Court of Appeals for the Federal Circuit on a contract with
the Defense Logistics Agency (DLA). The appeals court held
for the DLA during the Company's third quarter. As such, the
Company recorded a reserve for $521,000 for potential
losses.
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.
F-14
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
6. Taxes on
Income The provision for income taxes consisted of the following:
Year ended September 30, 1996 1995
-----------------------------------------------------------
Deferred benefit:
Federal $ 301,000 $ 452,000
State 29,000 44,000
-----------------------------------------------------------
330,000 496,000
Valuation allowance (330,000) (496,000)
------------------------------------------------------------
$ - $ -
============================================================
A reconciliation of the effective tax rates and the
statutory U.S. federal income tax rates follows:
1996 1995
-------------------------------------------------------------
U.S. federal statutory rates (34.0)% (34.0)%
State income tax benefit, net
of federal tax amount (3.3) (3.3)
Expenses not deductible
for tax purposes - 1.2
Increase in deferred
tax asset valuation
allowance 37.3 36.1
-------------------------------------------------------------
Effective tax rate -% -%
=============================================================
F-15
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Temporary differences that give rise to a significant
portion of the deferred tax asset are as follows:
1996
------------------------------------------------------------
Net operating loss carryforward $ 993,000
Inventory, obsolescence reserve 56,000
Accrued settlement 194,000
Capital loss carryover 122,000
Other 22,000
------------------------------------------------------------
Total gross deferred tax assets 1,387,000
Valuation allowance (1,387,000)
------------------------------------------------------------
Net deferred tax asset $ -
============================================================
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, 1996, the Company had net operating loss
carryforwards of approximately $2,663,000 with expirations
through 2011.
F-16
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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, 1996 are as
follows:
1996
------------------------------------------------------------
1997 $ 55,101
1998 20,237
1999 3,489
2000 2,334
------------------------------------------------------------
Total minimum lease payments 81,161
Less amounts representing interest 8,295
------------------------------------------------------------
Present value of net minimum lease payment 72,866
Less capital lease obligation, current 48,806
------------------------------------------------------------
Capital lease obligation, noncurrent $ 24,060
------------------------------------------------------------
8. Common Stock
Transactions As consideration for future service to be performed by the
recipient of certain 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 and recorded $31,250 in
deferred charges for future services. The options were
exercised in April 1995. Services by the recipient are to be
provided over three years. Accordingly, the Company is
amortizing deferred compensation charges on a straight line
basis over 36 months. Amortization of approximately $118,000
and $100,000 was recorded during in the years ended
September 30, 1996 and 1995.
F-17
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company issued 3,488 shares valued at $2,508 in exchange
for services rendered in August 1995. The Company issued
12,052 shares valued at $8,659 to two vendors to fulfill
payable obligations in June 1995. At various times
throughout the year ended September 30, 1996, options were
exercised for a total of 85,000 shares for a total of
$61,094.
The Company issued 230,000 shares valued at fair market
value of $231,215 to a financial advisor in exchange for
services to be performed for a period of 12 months beginning
in February 1996.
The Company collected $205,500 of subscriptions receivable
during the year ended September 30, 1995.
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.
F-18
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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. Through September 30,
1996, options to purchase 85,000 shares were exercised
resulting in proceeds to the Company of $61,094.
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 $9,700 and $8,900 in 1996
and 1995.
10. Major
Customers The Company has historically derived significant revenue
from contract services from a few customers. During the year
ended September 30, 1996, sales to three customers accounted
for 50%, 11% and 11% of total sales. During the year ended
September 30, 1995, the Company derived 48%, 17%, 15%, and
10% of total revenue from four customers. The majority of
all sales are to Government Prime or Sub-contractors.
11. Significant
Fourth Quarter
Adjustments During the quarter ended September 30, 1996, the Company
recorded consulting fees expense of approximately $118,000
relating to the amortization of deferred marketing expense.
During the quarter ended September 30, 1995, the Company
recorded an adjustment of $287,529 as an other expense for
the curtailment of certain activities being performed in
Argentina.
F-19
<PAGE>
DCX, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
12. Subsequent
Event In November 1996, the Company amended its articles of
incorporation to provide for a Series A 6% cumulative
convertible redeemable preferred stock $.001 par value
(Series A). The Company designated 1,000,000 shares Series A
as part of the authorized class of preferred shares. The
Company issued 500 shares of the Series A with a stated
value of $1,000 per share, with net proceeds to the Company
of $450,000, in November 1996.
13. Supplemental
Schedule of
Non-Cash
Investing and
Financing
Activities
1996 1995
------------------------------------------------------------
Common stock sold for
subscriptions receivable $ - $ 187,500
============================================================
Acquisition of equipment
under capital leases $ - $ 227,863
============================================================
Common stock issued for
services and debt $ 233,723 $ 8,659
============================================================
Cash paid for interest $ 114,000 $ 72,000
============================================================
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 209,637
<SECURITIES> 0
<RECEIVABLES> 1,025,040
<ALLOWANCES> (30,000)
<INVENTORY> 1,103,672
<CURRENT-ASSETS> 2,504,181
<PP&E> 2,039,534
<DEPRECIATION> 767,233
<TOTAL-ASSETS> 3,820,482
<CURRENT-LIABILITIES> 2,447,405
<BONDS> 0
0
0
<COMMON> 5,060,357
<OTHER-SE> 3,711,340
<TOTAL-LIABILITY-AND-EQUITY> 3,820,482
<SALES> 4,410,592
<TOTAL-REVENUES> 4,420,774
<CGS> 3,542,996
<TOTAL-COSTS> 5,318,672
<OTHER-EXPENSES> 145,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,757
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (908,080)<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,053,655)
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<FN>
<F1>Includes litigation settlement expenses of $446,674 related to loss on third
terminated contract.
</FN>
</TABLE>
