<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------
For the quarterly period ended March 31, 1996
Commission File Number: 0-20376
XXSYS TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0161808
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4619 Viewridge Avenue
San Diego, California 92123
(Address of principal executive offices)
(619) 974-8200
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common Stock, no par value
- -- 6,149,057 shares outstanding on May 5, 1996.
Transitional Small Business Disclosure Format (check one): Yes X No
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XXSYS TECHNOLOGIES, INC.
INDEX
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
Other Information 9
</TABLE>
2
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 198,517 $ 148,562
Cash in escrow (Note 2) 175,000 -
Accounts receivable 100,061 46,623
Stock subscription receivable (Note 3) - 380,000
Inventory - -
Prepaid expenses and other 64,094 53,600
------------- ------------
Total current assets 537,672 628,785
Machinery, equipment and furniture, net of
accumulated depreciation of $401,388 and $ 340,220 756,989 439,047
Long-term note receivable 446,928 446,928
Deferred costs ( Note 4 ) 192,500 1,102,181
Patents, net of amortization of $102,154 and $ 86,298 63,436 59,796
------------- ------------
$ 1,997,525 $ 2,676,737
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 502,552 $ 695,552
Accounts payable 442,943 521,699
Accrued liabilities 188,196 98,622
Related party accrued expenses 86,405 192,426
------------- ------------
Total current liabilities 1,220,096 1,508,299
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $100
Shares authorized -- 2,000,000;
Issued and outstanding -- 4,500
(liquidation preference -- $450,000) 450,000 450,000
Common stock, no par value
Shares authorized -- 20,000,000;
Issued and outstanding -- 6,149,057 / 6,067,082 12,360,285 12,068,535
Warrants for services to be performed (70,940) -
Accumulated deficit (11,499,657) (10,910,399)
Note receivable for preferred stock (286,259) (263,698)
Note receivable for common stock (176,000) (176,000)
Deferred compensation - -
------------- ------------
Total stockholders' equity 777,429 1,168,438
------------- ------------
$ 1,997,525 $ 2,676,737
============= ============
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $ -- $ -- $ -- $ --
Contract revenues 148,685 163,338 336,685 282,051
---------- ---------- ----------- ----------
Total revenues 148,685 163,338 336,685 282,051
Operating expenses:
Cost of equipment -- -- -- --
Cost of services 98,812 43,976 223,114 45,608
Selling, general and administrative 541,310 636,004 1,054,410 842,769
Research and development 28,651 76,310 28,651 90,503
---------- ---------- ----------- ----------
Total operating expenses 668,773 756,290 1,306,175 978,880
---------- ---------- ----------- ----------
Operating loss (520,088) (592,952) (969,490) (696,829)
Interest income 17,731 13,216 44,984 25,455
Other income ( 8 ) 249,999 -- 372,819 --
Interest expense (17,013) (16,033) (37,571) (34,712)
---------- ---------- ----------- ----------
Net loss $ (269,371) $ (595,769) $ (589,258) $ (706,086)
========== ========== =========== ==========
Net loss per share $ (.04) $ (.11) $ (.10) $ (.15)
========== ========== =========== ==========
Weighted average number of shares
outstanding 6,148,020 5,350,000 6,112,902 4,805,000
========== =========== =========== ==========
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (589,258) $(706,086)
Adjustments to reconcile net loss to cash 79,851
used in operating activities:
Depreciation and amortization 77,024
Non-cash compensation 143
Accrued interest income (22,561)
Changes in assets and liabilities:
Cash in escrow (175,000)
Investments -
Accounts receivable (53,438)
Inventories -
Prepaid expenses and other (10,494)
Accounts payable (78,756)
Accrued liabilities 8,039
Related party accrued expenses (106,021)
---------- ---------
Net cash used in operating activities (950,322) (626,235)
Cash flows from investing activities:
Purchase of machinery and equipment (379,110) (124,470)
Deferred acquisition costs 1,102,181 (1,991)
Other assets (19,496) (19,153)
---------- ---------
Net cash used in investing activities 703,575 (145,614)
Cash flows from financing activities:
Sale of common stock 380,000 45,000
Warrant redemption costs (87,051) -
Exercise of warrants 147,693 -
Issuance of warrants 49,060 -
Issuance of convertible notes - 800,000
Issuance of other notes payable - -
Repayment of notes payable (193,000) -
Payments of related party debt - -
---------- ---------
Net cash from financing activities 296,702 845,000
Net increase (decrease) in cash 49,955 73,151
Cash and cash equivalents -- beginning of period 148,562 8,722
---------- ---------
Cash and cash equivalents at end of period $ 198,517 $ 81,873
========== =========
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the information contained therein. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes for the year ended September 30, 1995, contained
in the Company's Form 10-KSB/A. The results of operations for the three-month
and six-month periods ended March 31, 1996, are not necessarily indicative of
results for the entire year.
2. CASH IN ESCROW
Cash in escrow represents the Company's contractual share
of payment of a consulting fee made part of a settlement of a lawsuit in 1995,
net of legal fees (See also Note 7). The funds are held in escrow pending
settlement of a dispute between the Company and its former president. All of the
conditions of the payment of the funds from escrow to the Company have been
satisfied, however, the escrow agent has declined to take further action without
the withdrawal of the claim made by the former president, or a court order
instructing the escrow agent to make payment to the Company. At the Company's
request the escrow agent has filed an interpleader action with the appropriate
court and based on the advice of counsel, the Company believes that the
interpleader action will be heard and ruled on in favor of the Company within
180 days of the balance sheet date, at which time the funds will be released to
the Company.
3. STOCK SUBSCRIPTION RECEIVABLE
The stock subscription receivable of $380,000 represents cash
received by the Company in October 1995 as partial payment for stock purchased
under a stock purchase agreement that the company signed on September 1, 1994.
The stock subscription receivable is shown as a current asset because the amount
was received prior to the issuance of these financial statements. Amounts still
owed the Company as part of the September 1, 1995, agreement totaling $176,000
are reported as a contra-equity account titled , "Note receivable for common
stock."
4. DEFERRED COSTS
Costs incurred in the first six months ended March 31, 1996, are in
connection with a planned redemption of warrants and have been deferred. If the
warrant redemption is completed, these costs will be accounted for as part of
the cost of the redemption. Otherwise, they will be charged to expense in the
period the warrant redemption activity is terminated.
5. NOTES PAYABLE
Notes payable borrowed from four individuals in May 1994 totaling
$100,000 and having an interest rate of 10% per year were paid off on October 4,
1995, including $13,940 in interest. Another note payable of $93,000 borrowed
from an individual over the August-September 1995 time-frame having an interest
rate of 10% per year was repaid on December 4,1995, including $4,904 in
interest.
Notes payable at March 31, 1996 totaling $502,552 represent extensions
and additions to loans that were in existence from two parties prior to October
1, 1995. The interest rate on loans outstanding at March 31, 1996, is at 10% per
year. These notes payable are due on October 11, 1996, or upon the Company
receiving no less than $2 million from any equity offering, whichever occurs
sooner.
6. COMMITMENTS
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At March 31, 1996, the Company had a commitment to make a final payment
of $40,000 on the purchase of a column wrapping machine subject to successful
field demonstration performance, consisting of wrapping 50 columns per the
contract's acceptance criteria. As of May 13, 1996, the machine had successfully
wrapped one column in a field demonstration conducted for Caltrans at the
intersection of Interstates 5 and 8.
7. STOCKHOLDERS' EQUITY
Common Stock:
On October 3, 1995, the Company received cash in the amount of $380,000
as part of a subscription receivable related to a private placement of
$1,056,000, in exchange for 211,200 shares of common stock sold to an uncle of
the Company's chairman at a price of $5.00 per share under a purchase agreement
dated September 1, 1995. Cash in the amount of $500,000 had already been
received by September 30, 1995. Of the total purchase commitment, $176,000
remains as a two-year note payable to the Company at an interest rate of 10% per
year, due September 29, 1997.
On December 27, 1995, the Company received $147,693 upon the exercise
of a warrant to purchase 75,740 restricted shares of common stock at $1.95 a
share.
On January 12, 1996, the company granted the issuance of 50 shares of
common stock, valued at $ 143, to a part-time employee. On January 19, 1996, the
Company authorized the issuance of 6,185 shares of common stock as payment for
services to four consultants, valued at $23,914, for an average $3.87 a share.
Warrants
On January 17, 1996, the Company issued warrants to a consultant to
purchase 100,000 shares of common stock, including 50,000 shares at $4.00 a
share and 50,000 shares at $3.50 a share in connection with services to be
performed over a six-month period. The warrants were valued at $120,000, of
which $49,060 was accrued for the Second Quarter ended March 31, 1996.
7. OTHER INCOME
Other income of $249,999 for the three months ended March 31, 1996,
represents further effects of the Company's settlement of a lawsuit in which it
claimed breach of contract and breach of fiduciary relationship against third
parties who interfered with the Company's efforts to acquire a composite
materials company in fiscal 1995. The Company previously reported other income
of $122,820 in the First Quarter of fiscal 1996 from the settlement. In October
1995 the Company received a cash payment of $1,300,000, which was offset against
the Company's cost of acquisition, including legal fees, appraisal,
environmental studies and other due diligence costs and estimated charges for
future costs totaling $1,177,180. Actual cost of acquisition and legal expenses
of the settlement were lower than previously estimated for the Second Quarter
1996, by approximately $75,000. Additional other income in the Second Quarter
1996 of $175,000 represents the effect of a separate payment of a consulting fee
made part of the settlement, net of legal fees. Total income realized from the
settlement for the six months ended March 31, 1996, is $372,819.
RESULTS OF OPERATIONS
Second Quarter of 1996 Compared to Second Quarter of 1995
Revenues of $148,685 were recorded in the quarter ended March 31, 1996,
which is the Second Quarter of the Company's 1996 fiscal year, representing a
decrease of $14,653, or 9%, compared with the Second Quarter of fiscal 1995. The
decrease in revenues was due principally to a reduction in work under government
contracts which have funded much of the validation and testing of the
Robo-Wrapper(TM) technology to date.
Total operating expenses of $668,773 in the Second Quarter 1996
decreased by $87,517 or 12%, under the Second Quarter of fiscal 1995. The cost
of services of $98,812 represented 66% of contract revenues in the Second
Quarter 1996. Most of the research and development efforts for the Second
Quarter 1996 continued to fit primarily under billable government contracts and
therefore were reported as cost of services. Selling, general and administrative
expenses decreased by $ 94,694 or 15%, to $541,310, due to lower compensation
expenses for outside services.
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Interest income during the Second Quarter increased to $17,731,
compared to $13,216 in the prior year's Second Quarter, as a result of a higher
level of cash available for investment and accrued interest on the long term
note receivable.
The net loss for the Second Quarter of fiscal 1996 of $269,371
represents a decrease of $326,398, or a 55% reduction, compared with the net
loss of $595,769 in the Second Quarter of 1995. The lower net loss was primarily
the result of other income (see Note 8). On a per share basis, the net loss was
$0.04 in the Second Quarter 1996, which represents an improvement of $0.07 a
share when compared to a loss of $0.11 in the Second Quarter of 1995.
Six Months of 1996 Compared to Six Months of 1995
Revenues of $336,685 were recorded in the first six months ended March
31, 1996, representing an increase of $54,634, or 19%, over the comparable
period in fiscal 1995. Despite a decline in government contract revenues in the
last three months, the overall government contract revenues for the six month
period were still higher than the comparable period in fiscal 1995.
Total operating expenses of $1,306,175 in the first six months of
fiscal 1996 increased by $327,295, or 33%, over the comparable period of fiscal
1995. The cost of services of $223,114 represented 66% of contract revenues in
the first six months of fiscal 1996. Research and development efforts for the
first six months of fiscal 1996 were funded primarily through billable
government contracts and therefore were reported as cost of services. Selling,
general and administrative expenses increased by $ 211,641, or 25%, to
$1,054,410, as the result of higher staffing levels and travel activity in
continuing support of marketing and commercialization of the Robo-Wrapper(TM)
Technology.
Interest income during the first six months increased to $44,984,
compared to $25,455 in the prior year's first six months, as a result of a
continued higher level of cash available for investment in fiscal 1996 and
accrued interest on the long term note receivable. Other income was primarily
the result of settlement of the lawsuit reported in this and the prior fiscal
quarter (see Note 6, Other Income).
The net loss for the first six months of fiscal 1996 of $589,258, which
represents a decrease of $116,828, or 17%, compared with the net loss of
$706,086 in the first six months of 1995. On a per share basis, the net loss was
$0.10 in the first six months of 1996, compared to a loss of $0.15 in the first
six months of 1995. The reduction in loss per share of $0.05 is primarily the
result of additional average number of shares outstanding compared with the
comparable period in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES--PLANNED WARRANT REDEMPTION
On January 16, 1996, the Company announced that it plans to call for
redemption of its publicly-traded common stock warrants ("Warrants"). The
Company has a right to redeem the Warrants at $0.05 per Warrant. There are
1,600,000 Warrants issued and outstanding, each of which initially entitled the
holder to purchase one share of common stock of the Company. The initial
exercise price of the Warrants was $6.00 per common share, however, the exercise
price at the time of the call for redemption is expected to be $4.00 per common
share after giving effect to certain adjustments pursuant to the anti-dilution
provisions of the Warrants. On February 21, 1996 the Company filed a draft
registration statement with the Securities and Exchange Commission ("SEC") on
Form SB-2 and an amended form on May 1, 1996. The Company is currently waiting
on comments from the SEC on the amended form.
The anti-dilution provision also affects the number of shares to be
purchased at the lower price, such that each Warrant is expected to entitle the
holder to purchase 1.50 shares of common stock (at $4.00 per common share). The
Company expects to formally call the Warrants for redemption in the late Spring
of 1996, subject to the effectiveness of a registration statement, a draft of
which has been filed with the SEC for purposes of registering the shares of
common stock issuable upon exercise of the Warrants.
The redemption of the Warrants, and the sale of any shares of common
stock issued upon the exercise of the Warrants, shall be made only by means of a
prospectus made part of the registration statement of which a draft of which has
been with the Securities and Exchange Commission.
IMPACT OF INFLATION
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Inflation has not had any significant effect on the Company's operating
costs.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently subject to certain claims and legal actions
arising in the ordinary course of its business. In the opinion of management,
all such matters are adequately covered by insurance or will not have a material
adverse effect on the Company's financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
On October 10, 1995, the Company filed a Form 8-K relating to the
settlement of a lawsuit that it filed against third parties in which the Company
claimed breach of contract and fiduciary duty with regard to its efforts to
acquire a carbon composites manufacturer.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
XXSYS TECHNOLOGIES, INC.
July 9, 1996
By: /s/ Gregory P. Hanson
--------------------------------------
Gregory P. Hanson
Chief Financial Officer (Principal
Financial and Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB/A FOR THE PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 373,517<F1>
<SECURITIES> 0
<RECEIVABLES> 546,989<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 537,672
<PP&E> 1,158,377
<DEPRECIATION> 401,388
<TOTAL-ASSETS> 1,997,525
<CURRENT-LIABILITIES> 1,220,096
<BONDS> 0
0
450,000
<COMMON> 12,360,285
<OTHER-SE> (462,259)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,997,525
<SALES> 336,685
<TOTAL-REVENUES> 336,685
<CGS> 223,114
<TOTAL-COSTS> 223,114
<OTHER-EXPENSES> 1,083,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,571
<INCOME-PRETAX> (589,258)
<INCOME-TAX> 0
<INCOME-CONTINUING> (589,258)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (589,258)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
<FN>
<F1>Includes $175,000 cash in escrow.
<F2>Includes $446,928 Long-Term Note Receivable.
<F3>Includes Notes receivable for Preferred Stock ($286,259) and Note receivable
for Common Stock ($176,000) which are contra-equity accounts.
</FN>
</TABLE>
