<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------
For the quarterly period ended December 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
- -- 7,375,176 shares outstanding on February 14, 1997.
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
</TABLE>
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1996 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 214,526 $ 184,489
Cash in escrow (Note 3) 314,498 -
Accounts receivable 96,198 75,602
Stock subscription receivable (Note 2) 200,000 1,149,933
Inventory 19,480 19,480
Prepaid expenses and other 74,995 89,967
------------ ------------
Total current assets 919,697 1,519,471
Machinery, equipment and furniture, net of
accumulated depreciation of $528,544 and $478,640 1,276,504 962,705
Cash in escrow (Note 3) - 175,000
Deferred costs 17,083 --
Patents, net of amortization of $125,866 and $121,058 39,724 44,532
------------ ------------
Total assets $ 2,253,008 $ 2,701,708
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 327,665 $ 324,823
Accrued compensation 102,706 37,119
Accrued liabilities 193,632 112,019
Related party accrued expenses 51,149 20,564
Current portion, long-term debt 61,733 75,803
------------ ------------
Total current liabilities 736,885 570,328
Long-term debt, less current portion 59,840 67,848
Commitments and contingencies (Note 4)
Shareholders' 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 -- 7,375,176/7,270,101 15,324,537 15,099,537
Accumulated deficit (13,806,481) (12,986,117)
Note receivable for preferred stock (313,737) (306,288)
Note receivable for common stock (198,036) (193,600)
Deferred compensation - -
------------ ------------
Total shareholders' equity 1,456,283 2,063,532
------------ ------------
Total liabilities and shareholders' equity $ 2,253,008 $ 2,701,708
============ ============
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Sales $ - $ -
Contract revenues 103,918 188,000
----------- -----------
Total revenues 103,918 188,000
Operating expenses:
Cost of equipment - -
Cost of services 151,357 124,302
Selling, general and administrative 927,743 513,100
Research and development 25,203 -
----------- -----------
Total operating expenses 1,104,303 637,402
Operating loss (1,000,385) (449,402)
Interest income 13,571 27,253
Other income (6) 169,498 122,820
Interest expense (3,049) (20,558)
----------- -----------
Net loss $ (820,365) $ (319,887)
=========== ===========
Net loss per share $ (.11) $ (.05)
=========== ===========
Weighted average number of shares
outstanding 7,297,819 6,077,784
=========== ===========
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (820,365) $ (319,887)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 54,711 33,902
Non-cash compensation - -
Accrued interest income (11,884) (11,341)
Changes in assets and liabilities:
Investments - -
Accounts receivable (20,596) (130,120)
Cash in escrow (139,498) -
Inventories - -
Prepaid expenses and other 14,972 (25,489)
Accounts payable 2,842 (87,112)
Accrued liabilities 147,200 58,738
Related party accrued expenses 30,585 1,479
----------- -----------
Net cash used in operating activities (742,033) (479,830)
Cash flows from investing activities:
Purchase of machinery and equipment (363,702) (158,685)
Deferred costs (17,083) 1,102,181
Other assets - (19,879)
----------- -----------
Net cash used in investing activities (380,785) 923,617
Cash flows from financing activities:
Sale of common stock 1,149,933 380,000
Warrant redemption costs - (42,500)
Exercise of warrants 25,000 147,693
Issuance of convertible notes - -
Issuance of other notes payable - -
Repayment of notes payable (22,078) (193,000)
Payments of related party debt - -
----------- -----------
Net cash from financing activities 1,152,855 292,193
Net increase (decrease) in cash 30,037 735,980
Cash and cash equivalents -- beginning of period 184,489 148,562
----------- -----------
Cash and cash equivalents at end of period $ 214,526 $ 884,542
=========== ===========
</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, 1996, contained
in the Company's Form 10-K. The results of operations for the three-month period
ended December 31, 1996, are not necessarily indicative of results for the
entire year.
2. STOCK SUBSCRIPTIONS RECEIVABLE
The stock subscriptions receivable at December 31, 1996, of $200,000
represent cash received by the Company in February 1997 as partial payment for
stock purchased under a stock purchase agreement that the Company signed on
September 12, 1996. The stock subscription receivable at September 30, 1996, of
$1,149,933 represents cash received by the Company from October 1, 1996, to
December 31, 1996, as part of that same stock purchase agreement. The stock
subscriptions receivable are shown as current assets because the amounts were
received prior to the issuance of the financial statements for each of the
periods ended September 30, 1996 and December 31, 1996.
3. 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. The Funds were held in escrow pending settlement of a dispute between the
Company and its former president. On January 14, 1997, the Company reached
settlement with the former president, in which $314,498 was received by the
Company from the funds held in escrow. The amount received by the Company has
been shown as a current asset as of December 31, 1996.
4. COMMITMENTS
At December 31, 1996, the Company had a commitment to purchase a column
wrapping machine designated for wrapping columns up to two feet in diameter. The
cost to complete the machine, Robo Jr.(TM), was approximately $231,663.
5. SHAREHOLDERS' EQUITY
Common Stock:
During October and November 1996, the Company received $25,000 from
four individuals who exercised warrants to purchase 31,250 restricted shares of
Common Stock at $0.80 per share.
During the period from October 11, 1996, to December 31, 1996, the
Company received cash in the amount of $1,149,933 from two individuals as part
of subscriptions receivable for 406,998 shares of restricted Common Stock under
Regulation S. The average share price of Common Stock issued to these two
individuals during this period was $2.83.
In February 1997 the Company received $200,000 as part of a $1,000,000
private placement agreement signed on September 12, 1996. The amount received is
shown as a subscription receivable at December 31, 1996. The average price per
share of the Common Stock issued was $2.75. The remaining funds to be received
under this private placement as of February 14, 1997, are $325,067.
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6. OTHER INCOME
Other income of $169,498 in fiscal 1997 represents the net effect of
the Company's receipt of payment of a consulting fee from a composite materials
company, less an amount paid to the company's former president in settlement of
a prior dispute with the former president over rights to the consulting fee, and
other matters.
Other income of $122,820 in fiscal 1996 represents the net effect 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
Company's efforts to acquire a composite materials company.
RESULTS OF OPERATIONS
First Quarter of Fiscal 1997 Compared to First Quarter of 1996
Revenues of $103,918 were recorded in the fiscal quarter ended December
31, 1996, the first quarter of the Company's 1997 fiscal year, representing a
decrease of $84,082, or 45%, compared with the first quarter of fiscal 1996. The
decrease in revenues was due to decreases in contract work performed under
research grants from the National Institute of Standards and Technology (NIST)
and the Advanced Research Projects Agency (ARPA) which were used to help
validate the application of the Company's carbon composite jacketing technology
for seismic retrofit. In December The Company began its first seismic retrofit
of bridge columns for the California Department of Transportation (CALTRANS).
The project was completed in January 1997.
Total operating expenses of $1,104,303 in the first quarter 1997
increased by $466,901, or 73%, over the first quarter of fiscal 1996. The cost
of services of $151,357 represented 146% of contract revenues. Research and
development efforts for the quarter were for the development of new products
over the next two to three year horizon. A substantial portion of the R&D work
continues to be performed under government research contracts and has been
reported as a cost of services. Selling, general and administrative expenses
increased by $414,643, or 81%, to $927,743, as a result of higher marketing and
sales activity as the Company expands its sales and marketing efforts in other
states.
Interest income during the first quarter decreased to $13,571, compared
to $27,253 in the first quarter of the prior year. Other income is primarily the
result of consulting fees received from a composite materials company (see Note
6, Other Income).
The net loss for the first quarter of fiscal 1997 of $820,365
represents an increase of $500,478 over the net loss of $319,887 in the first
quarter of 1996. The expansion of the Company's sales and marketing efforts
nationwide to both the public and private sectors was the primary reason for the
higher losses. On a per share basis, the net loss was $0.11 in the first quarter
1997, compared to $0.05 in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1997, the Company incurred losses in
pursuing the commercialization of its composite retrofit business primarily
because of the high level of expense in conducting small demonstration projects
and seminars in Southern California and neighboring states. The Company believes
that the commercialization of the retrofit business throughout the United States
will come from such demonstration projects and seminars, which are expected to
continue to grow throughout 1997. The Company has completed projects and
generated revenue now in both the public and private sectors in two states, Utah
and California. The Company's losses and cash outflows in support of this
strategy for the first quarter 1997 are consistent with its 1997 Operating Plan.
The sale of Common Stock continues to be the Company's supplemental
source of funds while the Company continues to commercialize its retrofit
business. The Company reported at the beginning of its fiscal year that
approximately $5.5 million in capital will be necessary to sustain operations
and capital equipment purchases throughout the 1997 fiscal year. During the
first quarter ended December 31, 1996, the Company received $1,149,933 from the
sale of 406,998 shares of restricted Common Stock through two private placements
under Regulation S and $25,000 from the exercise of warrants to purchase 31,250
shares of restricted Common Stock. An additional $200,000 was received in
February 1997 as part of the sale of restricted Common Stock under the same
private placements. The Company's cash outflows and net working capital balance
as of December 31, 1996, are consistent with management's 1997 fiscal year
operating plan.
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IMPACT OF INFLATION
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:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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.
February 17, 1997
By: /s/ Gregory P. Hanson
--------------------------------
Gregory P. Hanson
Chief Financial Officer (Principal
Financial and Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE PERIOD ENDED DECEMBER 31, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 214,526
<SECURITIES> 0
<RECEIVABLES> 296,198<F1>
<ALLOWANCES> 0
<INVENTORY> 19,480
<CURRENT-ASSETS> 919,697
<PP&E> 1,805,048
<DEPRECIATION> 528,544
<TOTAL-ASSETS> 2,253,008
<CURRENT-LIABILITIES> 736,885
<BONDS> 0
0
450,000
<COMMON> 15,324,537
<OTHER-SE> (511,773)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 2,253,008
<SALES> 103,918
<TOTAL-REVENUES> 103,918
<CGS> 151,357
<TOTAL-COSTS> 151,357
<OTHER-EXPENSES> 952,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,049
<INCOME-PRETAX> (820,365)
<INCOME-TAX> 0
<INCOME-CONTINUING> (820,365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (820,365)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES STOCK SUBSCRIPTION RECEIVABLE $200,000
<F2>NOTE RECEIVABLE FOR COMMON STOCK OF $198,036 AND NOTE RECEIVABLE FOR PREFERRED
STOCK OF $313,737 ARE SHOWN AS CONTRA-EQUITY ACCOUNTS.
</FN>
</TABLE>
